NU Online News Service, Aug. 6, 2:53 p.m., EDT

Strong investor demand for American International Group stock is allowing the Treasury Department to reduce its ownership in the insurer to 53 percent from 61 percent.

Monday afternoon, Treasury officials say that underwriters exercised their option to increase the size of the initial public offering by 750,000 shares, translating into the total purchase of approximately 24.6 million additional shares of AIG common stock at the public offering price of $30.50 per share.

The deal is a good one for the underwriters because AIG stock was up $1.065, or 3.4 percent at 2 p.m. to more than $32.40 in consolidated New York Stock Exchange trading.

AIG itself has agreed to purchase more than 98 million shares at the public offering price of $30.50, approximately a $3 billion investment.

In an investor's note, John Nadel of Sterne Agee in New York says that while the Treasury offering was “somewhat smaller than expected,” he sees the latest sale as part of a series of events regarding AIG securities likely to unfold over the next several months.

Nadel says that the latest Treasury sale was expected, and the next event will be after Sept. 4th, when AIG will be free to sell its remaining 19 percent stake in American International Assurance, or AIA, its Asian life insurance business.

Nadel estimates the current value of that stake at $7.5 billion, and he anticipates that AIG will use the proceeds of that sale, if consummated, to set the stage for another IPO of remaining AIG stock by Treasury.

“We expect AIG will have buyback capacity of between $7.5—$10 billion for the next secondary offering by Treasury, meaning calendar year 2012 buybacks will likely end up totaling between $15.5 million to $18.billion,” Nadel says.

AIG has already repurchased $8 billion of its own stock from Treasury this year, Nadel notes.

In its update today of its stake in AIG, the Treasury Department says the latest sale is expected to reduce Treasury's remaining investment in AIG to approximately $24.2 billion, consisting of approximately 871.1 million shares of common stock.

Treasury says the government aid to AIG during the financial crisis totaled $182 billion, although guarantees and loans through other Federal Reserve facilities likely added to the total.

After giving effect to the offering, the government's remaining investment of approximately $24.2 billion would represent a nearly 87 percent reduction from that original $182 billion commitment.

In addition to principal repayments, the Federal Reserve and Treasury have received additional income from interest, fees, and other gains, the statement says.

That additional income beyond principal repayments totals $14 billion, including approximately $13 billion from the Federal Reserve's investment and approximately $1 billion from Treasury's investment, says the statement.

Special Reports /

Treasury Reduces AIG Stake to 54%

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