American International Group (AIG) shares fell after the US treasury department said it would sell $18 billion of the insurance company’s stock, raising questions as to whether the market could absorb such a large sale.

The offering represents the government’s biggest sell-down of AIG since rescuing the insurer with bailouts in 2008 and 2009. The planned stock sale would be the largest secondary stock offering since December 2009, and the largest equity offering since Facebook’s initial public offering in May.

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.

“Everyone wants the government to eventually get out of the stock because it’s been a hang-up for the company,” said Eric Steiman, an individual investor who owns AIG shares and publishes his investment approach on the web site Covestor. “It’s just a matter of, ‘can the market handle a huge offering?’ ”

The stock sale will reduce the government’s stake in AIG to roughly 20 per cent from a current level of 53 per cent. – (Reuters)