(Updates share price, adds background on bailout and details from SEC filing)
Sept 10 American International Group (AIG.N) shares fell 1.5 percent on Monday after the U.S. Treasury Department said it will sell $18 billion of the insurance company's shares.
The offering represents the government's biggest sell-down of AIG since rescuing the insurer with a bailout in 2008, and will reduce its stake to roughly 20 percent from a current level of 53 percent.
The Treasury Department and Federal Reserve extended a combined $182 billion lifeline to AIG at the peak of the financial crisis, after the insurer became entangled in subprime-mortgage derivatives.
Some of that money was never used and the bulk of the remaining bailout money has been recouped through stock offerings and asset sales. AIG still owes U.S. taxpayers $23.3 billion, according to a tally by ProPublica.
AIG itself will buy back $5 billion of its own shares in the upcoming stock sale, with the rest of the shares going to the broader public.
AIG will use $3 billion worth of cash and short-term securities, and $2 billion in proceeds from the sale of its stake in Asian life insurer AIA Group to buy back stock from the government, the company said in a securities filing on Monday.
The Treasury Department announced its plans on Sunday and AIG shares were lower on Monday in late morning trade, down 51 cents at $33.48. Investors had widely expected the Treasury to cash out of its AIG shares, but many investors had expected the sales to happen over a longer period of time.
AIG's largest shareholder, Bruce Berkowitz, declined to comment on the matter through a spokeswoman.
Underwriters for the deal include Citigroup Inc (C.N), Deutsche Bank AG (DBKGn.DE), Goldman Sachs Group Inc (GS.N), JPMorgan (JPM.N), Bank of America Corp's (BAC.N) Merrill Lynch division, Barclays PLC (BARC.L), Morgan Stanley (MS.N), Royal Bank of Canada's (RY.TO) RBC Capital Markets division, UBS AG <UBSN.VX, Wells Fargo & Co (WFC.N), Credit Suisse CSGN.VX and Macquarie Group Ltd (MQG.AX).
Treasury's sale comes as President Barack Obama campaigns for a second term and has been forced to defend his support of decisions to use taxpayer money to prop up companies during the financial crisis.
The administration has been unwinding its position in the politically unpopular financial crisis programs ahead of the election, amid heavy Republican campaign pressure over the value of the bailouts, with more than 300 small banks having yet to repay taxpayers.
(Reporting By Dan Wilchins, Ben Berkowitz and Lauren Tara LaCapra; Editing by Andrea Ricci and Tim Dobbyn)
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