Chart of the Day – AIG vs SPX – The Empire Strikes Back

by Dan September 10, 2012 1:53 pm • Commentary

Last night the U.S. Treasury announced that they will be parting with almost half of their remaining stake left over from its bailout of the company almost 4 years to the date.

What’s fascinating about the price performance of AIG ytd is that it’s 45% gains all come with the knowledge of the U.S. government’s 2012 starting position of 1.3 billion share overhang, and their stated intent to be a massive seller throughout 2012.

The chart below tracks the 1 year performance of AIG vs the S&P500, they have traded in lock-step, except for the massive out-performance on a return basis to the broad index.

1 Yr AIG vs SPX from Bloomberg


The U.S. Treasury plans to sell $18 billion worth of stock, possibly as soon as this evening or tomorrow morning, with the intent to place in large stable shareholders hands, but also to the company which has initiated a $5 billion buyback.  Even with the expected deal dwarfing the size of May and Aug’s $5billion offerings from the Govt, the stock could find some footing, as investors look to play for a potential “clean up” sale in Q4 from the government.

Als0, as the company gets out from under the Govt’s yoke, there are many analysts and investors alike who will start to view the story less as a restructuring story to one that presents the opportunity for meaningful earnings growth from a very depressed base.

The Feds have been smart opportunistic sellers, but this may be one instance where it may not make sense to go along with the whales.  AIG has gotten out from its “red headed step child” labeling and now trading on its own merits.  I am not sure you have to run in there on this offering, but the next and final offering to be sure will be dominated by the largest shareholders, underwriters and the company.