Is Treasury’s AIG Sale Just Some More Political Maneuvering Ahead of Election 2012?

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The U.S. Treasury Department has announced it will sell off the majority of its stake in AIG (NYSE:AIG) in an $18 billion offering later this month. The sale will make the government a minority investor in the world’s largest insurer for the first time since it rescued the company four years ago at the height of the global financial crisis.

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The sale will cut the government’s stake from 53 percent to 20 percent. While the Treasury was expected to sell stock this week, the size of the sale came as big surprise. It will trigger a number of changes at AIG, not the least of which is that, after the sale, AIG will fall under Federal Reserve regulation as a savings and loan holding company, as it owns a small bank. The sale also means the Treasury will lose the ability to dictate the terms of further stock sales.

AIG said it plans to buy back $5 billion of shares being offered. The company sold part of its stake in Asian insurer AIA last week to help fund the buyback.

The move is thought to be some well-timed political angling ahead of the November election. As he campaigns for a second term, President Barack Obama has been forced to defend taxpayer-funded bailouts granted during the Great Recession. Meanwhile, the administration has also been working to unwind its positions in politically unpopular financial crisis programs ahead of the election as Republicans, led by presidential candidate Mitt Romney, launch an assault over the value of the bailouts, many of which have not been paid back.

Of course, the Treasury denied that it’s rushing its AIG exit for political reasons, even as it said the profitable sale of the insurer’s stock burnished the reputation of crisis-era rescue programs. That fact could help bolster Obama’s position against Romney and the small-government conservatives hoping to oust the president after a single term.

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