Reuters

The U.S. Treasury Department said it will sell most of its stake in insurer American International Group Inc., making the government a minority investor for the first time since it rescued the company four years ago.

While the Treasury was universally expected to sell stock this month, the magnitude of the planned $18 billion offering was a surprise that will take the government stake in what had been the world's largest insurer to around 20 percent from 53 percent currently.

The sale announced Sunday will trigger a number of changes for AIG, the most important of which is that it will now fall under Federal Reserve regulation as a savings and loan holding company. The Treasury will also lose the ability to dictate the terms of further stock sales.

AIG said it would buy up to $5 billion of the offering.

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A number of analysts who follow AIG said at the time they were disappointed the company was not buying back more shares, although they also assumed the eventual government offering would be much smaller than it has turned out to be.

Barclays Capital said investors were likely to be disappointed if the government was not out of the stock by the November election.

The sale, Treasury's biggest sell-down of its AIG stake so far, comes as President Barack Obama campaigns for a second term and has been forced to defend his support of decisions to use taxpayer money to prop up companies during the financial crisis.

But the Treasury has steadfastly denied it was rushing to exit the AIG stake before the election, even as the repeated profitable sales of the insurer's stock burnished the reputation of the crisis-era rescue programs.

The announcement also comes in the week that the Federal Reserve is expected to announce it is providing the U.S. economy with further monetary stimulus.