AIG and the U.S. government could finalize a plan as soon as Wednesday to allow the government to give up its ownership in the insurer, according to reports from Politico, the Wall Street Journal and, earlier this week, Bloomberg.
The outline of the apparent plan was reported earlier this month in the Wall Street Journal: The Treasury would convert its 79.8 percent stake in the company, worth about $49 billion, into common stock from preferred shares. Such a move would increase the government’s stake, potentially to more than 90 percent, before it begins the process of gradually selling its shares on the open market.
According to Politico, the converted stock would be worth about $70 billion, which could spell profit for taxpayers and political victory for Democrats in advance of the midterm elections. But the insurance giant and its government counterparties — the Treasury, the Federal Reserve and the three trustees who oversee the preferred stock — would have to tread carefully.
As the WSJ discusses, the share price would determine the extent to which private shareholders see their ownership diluted, and the parties would have to strike a compromise to maximize value for both private shareholders and taxpayers. To prevent private shareholders from selling their stock after a government conversion, the company, whose initial government rescue package was worth about $182.3 billion and includes various types of investments, could issue warrants allowing shareholders to buy stock at a low price, the New York Times says.
Even if the parties settle on a stock conversion plan, AIG would need to repay about $19.7 billion to the Federal Reserve before the plan can be executed.