US Treasury reduces AIG stake to 70 per cent The US Treasury has sold 206m AIG shares at $29 apiece, lowering its stake from 77 to 70 per cent and touting the recovery of taxpayer money used to bail out the insurer during the financial crisis. The sale price is above the $28.73 level that represents the per-share cost of the Troubled asset relief programme loans extended to AIG in 2008. At $29, the sale had the potential to earn a small profit for taxpayers of up to $55m before underwriting fees. "Today is another important step in our efforts to recover the taxpayer's investment in AIG," said Tim Massad, assistant Treasury secretary for financial stability, in a statement. Treasury said that previous to the latest sale, it had recovered 77 per cent of $414bn of Tarp funds disbursed in the wake of the financial crisis, during which banks and other systemically important financial institutions tapped the government for capital when markets froze up. Traders, however, may have seen a small loss on the deal. The sale was at a 1.6 per cent discount to Friday's closing price of $29.45, but AIG's shares were down 2.7 per cent to $28.67 yesterday following the closing. AIG's shares have struggled to stay above the $29 level despite a surge in profits in the fourth quarter, with further Treasury sales looming over the stock and limiting the government's potential profit. "The shares are disconnected from [the] fundamental underpinnings of the company, since everybody knows there's a big seller," said Jack Ablin, chief investment officer at Harris Private Bank. The sale also represented a milestone for AIG, as it bought back 103m of its shares for $3bn. In the first Treasury sale of AIG shares last year, known as the "re-IPO," AIG was also a seller alongside the government. AIG has announced a separate $1bn share buyback programme, but had only purchased $40m in the fourth quarter. The difference now is that AIG has said it expects to be profitable in the near term, for which it credits a recovery in its core insurance businesses, and has claimed some $50bn worth of loss carry-forwards that will protect it from income taxes for several years. In addition to raising $3bn, AIG repaid the $8.5bn in preferred interest owned by the Federal Reserve Bank of New York in a special purpose vehicle. It used money raised from recent sales of assets such as AIA and Alico, its spun-off Asian and European subsidiaries, and the Maiden Lane II mortgage securities portfolio. Michael Nannizzi, analyst at Goldman Sachs, said that the retirement of the preferred interest would save AIG roughly $500m a year, or 25 cents per share. The offering was marketed globally by Citigroup, Credit Suisse and Morgan Stanley. Treasury had replaced the initial underwriting group of Bank of America, Deutsche Bank, Goldman Sachs and JPMorgan that led its first offering of AIG stock last May. That deal also priced at $29, but for a smaller amount of shares than had been hoped.