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August 19, 2010 Thursday 9:54 AM EST
NEWS & COMMENTARY; Commentary; MarketWatch First Take
Bailout babies want to grow up
NEW YORK (MarketWatch) — Like hatchlings, American International Group Inc. and General Motors are eyeing an exit from their cozy government nest. They’re also getting a nudge more like a shove.
AIG (AIG) reportedly is readying a bond offering that would be its first effort to raise capital without government aid since taxpayers bailed out the insurer with $180 billion in guarantees. Separately, GM filed its initial registration for a public offering.
Both companies have reassured investors with their most recent results. AIG posted a $1.06 billion loss, but took $4 billion in charges from a unit it sold. GM made $1.3 billion in the second quarter on revenue of $33.2 billion.
But are investors ready? The IPO market is dicey. Eight of the last 25 IPOs priced in the U.S. market have negative returns, according to IPOScoop.com. The market for new bonds is better for both investment grade and high-yield, or junk, issues. But few, if any, of those issues have come from companies with the baggage of AIG.
AIG seems to be simply testing the waters. A failed bond issue is unlikely and probably wouldn’t be much of a blow to the company. It still has ample credit from Uncle Sam. For GM, an IPO seems rushed, even if the Securities and Exchange Commission waits the full 90 days before giving it the green light.
GM could probably raise more in an offering if it waited a couple of quarters, as long as the automaker appears to be making the sort of headway it seemed to make in the second quarter. More time would also allow GM to address some of the troubling issues — its inadequate internal controls, for instance — and make a better case to investors.
The political reality, however, is that the Obama administration needs to show progress fast with the bailouts. A Pew Research Center poll recently found that 56% of Americans believe TARP was passed under Obama. It wasn’t. But the president is on the hook. The bailout babies need to be pushed out of the nest.
Even if they’re not quite ready.
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August 20, 2010