NEW YORK (Reuters) - Shares of American International Group Inc (AIG.N) jumped as much as 43 percent on Monday, boosted by hopes that quick asset sales might allow the struggling insurer to repay an emergency bailout loan and stay out of the clutches of the U.S. government.
It was the third day of gains for the stock, which hit its all-time low of $1.25 on September 16, just before the company was bailed out by the Federal Reserve with an $85 billion loan to help it recover from massive losses it suffered on mortgage derivatives.
Under last week’s deal, brokered by Treasury Secretary Henry Paulson, the Federal Reserve would take an almost 80 percent stake in the insurer, diluting the existing shareholders’ ownership.
According to a report in the Wall Street Journal on Monday, major shareholders are looking to organize a quick sale of assets and to raise capital in order to pay off the Federal Reserve loan, thereby keeping AIG independent, citing an unnamed person it said was familiar with the matter.
It did not name any shareholders in particular, but noted that AIG investors such as Bill Miller of Legg Mason (LM.N) and former AIG director Eli Broad banded together earlier this year in their successful push to remove then-AIG Chief Executive Martin Sullivan.
“We heard earlier that there was a group getting together to buy some assets,” said Bobby Harrington, head of block trading at UBS in Stamford, Connecticut. The company has made no comment on its situation.
AIG’s large and profitable insurance underwriting units — which are separate from AIG’s disastrous derivatives operation — should get plenty of willing buyers, industry-watchers said.
“It’s a soft market in the insurance industry right now, so a lot of people would give their eye tooth to own (parts of AIG),” said Andrew Barile, an independent insurance consultant, based in Rancho Santa Fe, California. He said the sum of all the parts of AIG, which underwrites almost every type of insurance in markets around the world, could be worth as much as $180 billion.
Allstate Corp (ALL.N) would be a natural contender to buy AIG’s U.S. personal auto insurance unit, said Barile, which would make Allstate the country’s largest auto insurer, surpassing giant mutual State Farm.
Edward Liddy, who was appointed AIG’s chief executive last week to oversee the asset sale process, was CEO of Allstate from 1999 to 2006.
If AIG can repay the loan from the proceeds of asset sales and retain an operating base, shareholders would fare better than if the Federal reserve took up its 80 percent stake, which would dilute existing shareholders’ stake.
“Maybe people are speculating that there will be some value in the business going forward,” said Harrington. “They’d pay back the government, and the company would still have some businesses that are strong.”
AIG shares closed up 87 cents, or 22.6 percent, to end the day’s trade at $4.72 on the New York Stock Exchange.
Reporting by Bill Rigby and Kristina Cooke, editing by Leslie Gevirtz