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BREAKING NEWS FROM CNBC'S KATE KELLY: TREASURY AND BANKERS AT STANDOFF ON AIG RE-IPO PRICING

WHEN: Thursday, May 5, 2011

WHERE: CNBC's "The Strategy Session" at 12PM ET

Following is the unofficial transcript of breaking news from CNBC's Kate Kelly. All references must be sourced to CNBC.

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DAVID FABER: SHIFTING GEARS LETS DO THAT RIGHT NOW ALRIGHT HEAD DOWN TO WAHINGTON, DC A BREWING STANDOFF BETWEEN THE GOVERNMENT AND WALL STREET OVER AIG'S MASSIVE SECONDARY WE ALMOST CALL IT A RE-IPO IF YOU WILL GIVEN HOW SMALL THE FLOW IT IS KATE KELLY STANDING BY WITH BREAKING DETAILS OF BOTH THE STANDOFF KATE AND I KNOW YOU ALSO HAVE NEW NEWS FOR US ON WHERE THIS THING MAY END UP BEING PRICED

KATE KELLY: WELL DAVID OFFICIALS AT THE TREASURY AND SOME OF THE BANKERS WORKING ON AIG'S RE-IPO ARE AT LOGGER HEADS IM TOLD OVER THE PRICE OF THE DEAL AT LEAST AT THE MOMENT WITH JUST A FEW DAYS LEFT TO GO UNTIL THE ROAD SHOW IS SCHEDULED TO BEGIN ON WEDNESDAY OF NEXT WEEK TREASURY IS INDICATING THAT THEYD LIKE THE DEAL TO PRICE SOMEWHERE NEAR THE CURRENT MARKET VALUATION WHICH IS ABOUT 31 DOLLARS AND CHANGE BUT SOME OF THE BANKERS WORKING ON THE DEAL ARE ADVOCATING FOR A CONSIDERABLY LOWER LEVEL IM TOLD SAYING THAT THE SHARES COULD BE HARD TO MOVE THAT ANY PRICE SAY ABOVE 30 DOLLARS YOU HAVE TO OFFER A DISCOUNT TO INVESTORS THEY'RE SAYING AND THAT EVEN THAT NUMBER COULD PROVE A STRETCH ALSO UP IN THE AIR OF COURSE IS THE TOTAL SIZE OF THE DEAL AT SAY 30 DOLLARS PER SHARES SOME OF THE BANKERS FEEL THIS FIRST ROUND OF TREASURY STOCKS SALES WOULD HAVE TO BE ON THE SMALLER END OF THE SCALE LETS SAY NO LARGER THAN 10 BILLION. AT A LEVEL CLOSER TO 25 THEY HAVE ARGUED THEY COULD MOVE A LOT MORE OF THE TREASURY'S CONSIDERABLE SLUG OF STOCK MAYBE EVEN TWICE THAT. THIS COULD BE COMPELLING TO THE GOVERNMENT SINCE WITH 92% OF AIG'S SHARES THE TREASURY HAS SO MUCH TO SELL. GIVEN THAT THERE ARE STILL SEVERAL DAYS OF TRADING LEFT TO GO BEFORE THIS DECISION REALLY HAS TO BE MADE AND THAT A NUMBER OF PRICING DISCUSSIONS ARE STILL SCHEDULED IN THE ITERIM, THESE DETAILS ARE STILL FLUID. AND OF COURSE THERES ALWAYS A LOT OF POSTURING THATS GOING TO GO ON WITH DEALS LIKE THIS IN WHICH INVESTORS ANGLE FOR A LOWER PRICE BANKERS PICK UP ON THAT THEY ARGUE FOR LOWER LEVELS AS WELL AND THEY WANT TO INCREASE THE SIZE OF THE DEAL MEANWHILE THEY ALSO WANT GOOD BUZZ IF THE VALUATION CLIMBS HIGHER FOR EXAMPLE AS IT DID WITH GM. INTERESTINGLY THE PARTIES ARE NOT OBLIGED UNDER SECURITIES LAW THOUGH TO PRICE THE DEAL AT PARTICULARLY NEAR THE CURRENT SHARE PRICE IT IS A GUIDELINE BUT ITS NOT A GIVEN UNLIKE AN IPO IN A TRADITIONAL FOLLOW ON OR SECONDARY OFFERING THE COMPANY WOULD NOT BE WEDDED TO A SPECIFIC PRICE WHEN IT WENT ON THE ROAD BUT THIS IS AN UNUSUAL DEAL DAVID AND ITS UNCLEAR WHETHER THE TYPICAL RULES WILL APPLY.

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