AIG Exits AIA Stake to Simplify the Company Operations and Boost Share Prices Further

American International Group Inc., which is more popularly known as AIG is seeing highs on the stock market as investors are in more ease with the financial policies of the country. The company which has exited from the AIA Group recently, was the one to have repaid a US bailout recently.

As it has divested the Hong Kong based insurer AIA, the New York based company has removed a holding that increased the volatility of quarterly profits of the company, due to the stock market fluctuations of the same. According to Meyer Shields, who works as an analyst at Stifel Nicolaus, the company’s operational goals are now simpler for investors and hence, they should be willing to pay a higher valuation for the company. 

Incidentally, AIA was tied with AIG, since the latter was founded in 1919. AIG was the first ever foreign-based insurer to get a trading license in China. However, with the recent sale of shares worth $6.5 billion in AIA, AIG will no longer have any stake left in the business. Robert Benmosche, the Chief Executive Officer of AIG has already agreed to a deal that involves sale of the plane-leasing unit of the company. Incidentally, the final stake which was acquired by US during the 2008 bailout of AIG has also been sold.

On The New York stock exchange, AIG has advanced by 3% and each share is priced at $34.95 currently. The Standard & Poor’s 500 Index has gained a total of 14% in 2012, whereas, AIG has surged ahead by a total of 51%. According to analysts, AIG is currently on a spree to optimize its portfolio and that should free up the excess capital of the company in future. This freed up capital can then be used by the company to return back to the shareholders, as predicted to many.

Earlier this year on March and September, AIG sold its AIA shares worth $8 billion as well. The company has followed the initial offering set in 2010 that reduced its stake on AIA to 33%. Moody’s Investors Service’s analyst, Bruce Ballentine stated that the simplification of AIG’ business profile will help the company greatly over the years. Bruce also stated that this separation from AIA signals recovery of the company from the financial crisis.