IPO VIEW-AIG, Ally offerings may crowd out others
By: PARITOSH BANSAL AND CLARE BALDWIN
Reuters
January 28, 2011

* AIG, Ally share sales possible in H1, may top $20 bln

* Investors often have defined sector allocations

* Success of AIG, Ally may force others to delay -banker

By Paritosh Bansal and Clare Baldwin

NEW YORK, Jan 28 (Reuters) - Banks aiming to pay back bailout money to the United States could look to raise capital soon as the government itself plans to sell billions of dollars worth of shares in financial companies. The Treasury Department is planning massive share offerings to sell down its stakes in two large wards of the state: American International Group (AIG.N) and Ally Financial.

Both those offerings could come in the first half of this year and could top $20 billion total, according to sources familiar with the situation. AIG and the Treasury plan to sell $15 billion or more of the insurer's shares in a secondary offering after May 15. Ally is eyeing a share sale of more than $5 billion and could take its initial public offering to the market around the same time, according to sources.

Investors often have a defined amount of money they are willing to allocate to financial stocks, and after a few big deals, their capacity to buy more bank shares could be limited. That factor hurt Citigroup in December 2009, when it sold shares after Bank of America Corp (BAC.N) and Wells Fargo & Co (WFC.N) had already raised more than $30 billion. Officials at the bank said those sales forced Citi to sell shares at a lower price.

"If they make it attractive in order to get that volume I think it will have a crowding out effect for a period of time," said Marshall Sonenshine, chairman of boutique investment bank Sonenshine Partners. "I don't think that means everything else just shuts off. It just means some things get delayed." There are at least three large banks that have yet to repay TARP - SunTrust Banks (STI.N), Regions Financial Corp (RF.N) and KeyCorp (KEY.N).

If banks can't sell shares soon, the government could be in the unfortunate position of delaying its collecting TARP funds from banks by selling so many Ally and AIG shares. Global markets have shown a remarkable appetite for financial services stocks in the last two years, with FIG offerings accounting for 30 percent to 40 percent of all IPO and secondary issuance, according to Thomson Reuters data. On Friday, BankUnited (BKU.N), a private-equity backed regional bank, raised a higher-than-expected $783 million in its IPO. [ID:nN28101595]

But coming on top of that, Ally and AIG offerings could test the market's appetite for more financial institutions stocks. "It's a lot of paper to digest," a financial services banker said. "It will cause people to be more selective in terms of where they put money to work in the FIG space."

The markets have been receptive to offerings by banks looking to pay back funds given to them under the bailout program -- Troubled Asset Relief Program. Earlier this month, Fifth Third Bancorp (FITB.O) raised $1.7 billion to repay TARP. SunTrust Banks Inc (STI.N) has about $5 billion in aid to repay, Regions Financial Corp (RF.N) has $3.5 billion and KeyCorp (KEY.N), $2.5 billion.

Given that investors have been expecting these banks to raise capital, they should be able to do so despite the AIG and Ally offerings, the banker said. Moreover, even though all are financial services stocks broadly, they are different businesses. AIG has U.S. life and global property-casualty insurancy operations. Ally, formerly GMAC, makes auto and home loans.

DEMAND FOR SHARES

Bankers said the offerings by AIG and Ally, while challenging just due to their size, are likely to see sufficient demand if they are priced right and the market holds up. The Treasury, which has a 92 percent stake in AIG, would be left with a lot of stock to sell even after the first deal and plans to attempt another large share sale later this year.

"Any time you work on equity issues this big it's a challenge," said a U.S.-based equity capital markets banker who declined to be named. I don't think we are coming up on any kind of capacity constraint, given fund inflows into equities overall, which have been gaining momentum and have been positive for a couple of months now," the banker said.

Many large banks have already raised capital and may not need to go back to the market. A firm that's got strong earnings and growth could also persuade investors to take part in a share offering even if the volume of financial services deals is high. But for others, the AIG and Ally offerings may prove to be an additional challenge they could do without.

"They may decide to defer those offerings while those larger deals clear through the market," Sonenshine said.

(Reporting by Paritosh Bansal and Clare Baldwin; Editing by Bernard Orr)