American International Group and the Treasury said they will sell around $9 billion in AIG stock, suggesting the government's exit from its crisis-era investment will be slower and less profitable than originally thought.

The offering is less than half of what had been contemplated earlier this year. When Wall Street banks offered their services to manage the sale in January, there was talk of an offering of more than $20 billion.

One angry shareholder made his displeasure clear at AIG's annual meeting on Wednesday.

I think the directors have mismanaged this. You're now selling stock at one half of what it sold for a few months ago, said Kenneth Steiner, who holds 600 shares of AIG. What happened here is a real shame and real tragedy. It's only being made worse now by this dilutive offering.

Still, most of the shareholders who spoke at the meeting offered praise for the board's work and for Chief Executive Robert Benmosche in particular. Benmosche, the former MetLife CEO who took over AIG in the midst of the crisis, stopped the company's fire-sale breakup, energized the staff and restructured the company. He did much of it while undergoing treatment for cancer.

PROFITS LOST

The question now is whether the government can still make money on AIG's restructuring.

At one point earlier this year, the Treasury was sitting on a paper profit north of $27 billion. There was talk of a blockbuster stock offering in May, a second one later in the year and perhaps a third in early 2012 to get the government out of one of its riskiest investments.

In the meantime, AIG ran into asbestos problems at its property insurer Chartis, short sellers piled into the small number of shares still publicly traded and in four months the company shed more than a third of its value.

The Treasury would have to raise just over $47.5 billion from AIG share sales to break even, a taller task that might require more patience and more share sales than anticipated.

AIG shares closed up 3.5 percent at $30.65 on the New York Stock Exchange, their best day in nearly two months. Over that span the stock closed lower about three-quarters of the time.

Up or down, though, when AIG was rescued in September 2008 few expected it would even exist today. The company received $182 billion in bailouts and managed to restructure while preserving two core insurance businesses.

One of the few analysts still covering the stock said the shares were worth buying despite major headline risks.

We still believe a high degree of execution risk remains, and while we would not rule out the need for future capital raises, we think the shares are undervalued versus peers and historical valuations, Standard & Poor's equity analyst Cathy Seifert said in a note.

AIG trades at about 0.65 times its book value, whereas other property insurers trade at an average multiple of 0.97, and other life insurers average 0.91, according to Thomson Reuters data.

Taking a loss on AIG would be a black eye for the Treasury, but the government is under pressure to exit its crisis-era investments in private companies. A looming presidential election only adds to that pressure.

The government turned a profit of $12 billion on its investment in Citigroup Inc but took a loss on its first sale of shares in automaker General Motors Co. The government is expected to begin selling off its stake in Ally Financial Inc later this year.

FANNING OUT

AIG is sending two teams to begin meeting with investors on Wednesday, a source familiar with the situation said, and Benmosche will personally be meeting with multiple banks.

AIG said last Friday it needed to raise $3 billion in the stock offering, which would imply a price of around $30 a share. But one investor said on Wednesday the offering was more likely to price at a discount to where the shares are now.

The prospectus filed on Wednesday said the Treasury would sell 200 million shares and AIG would sell 100 million. The Treasury has an option to sell an additional 45 million shares to cover excess demand.

Assuming the Treasury sells 200 million shares, the government stake in AIG would fall to 77 percent from the current 92 percent.

(Reporting by Ben Berkowitz and Clare Baldwin; editing by Dave Zimmerman, Matthew Lewis, John Wallace and Andre Grenon)

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