AIG Outlines Plans to Slim Down Amid Investor Pressure -- 2nd Update
January 26 2016 - 11:59AM
Dow Jones News
By Leslie Scism and Lisa Beilfuss
American International Group Inc. will sell its broker-dealer
network, conduct an initial public offering of its
mortgage-insurance unit and more aggressively cut costs, Chief
Executive Peter Hancock said in a strategy update Tuesday, as
pressure from investor Carl Icahn grows .
AIG also said it plans to return at least $25 billion over the
next two years to shareholders in the form of share buybacks and
dividends, funded by divestitures, operating performance and other
things. The amount is higher than some analysts expected and above
the $20 billion Mr. Icahn pushed for.
In addition, the board also approved a plan to reorganize AIG
into nine separate business units, and the company said that "if
they don't adequately contribute to financial targets," AIG "could
consider" the divestiture of even its core property-casualty unit.
"There are no sacred cows," Mr. Hancock said on a call with
analysts and investors.
AIG will create a new legacy portfolio, representing more than a
quarter of total equity and consisting of non-strategic assets,
businesses flagged for sale and certain other items. The company
said it intends to release $9 billion of capital from the $22
billion portfolio by 2017.
Shares in the company rose 1.5% in morning trading, paring the
stock's loss over the past three months to 8%.
In announcing the moves, the insurance giant is heeding many
investors' calls for more asset dispositions but isn't following
activists' game plan for an immediate breakup. "After careful
consideration, AIG believes that a full breakup in the near term
would detract from, not enhance, shareholder value," said Douglas
Steenland, nonexecutive chairman, adding that Mr. Hancock has the
board's "full support."
Barclay's analyst Jay Gelb noted AIG's strategic update falls
short of Mr. Icahn's demands and suggested pressure on the
company's board could intensify.
Separately, AIG announced that it would strengthen its loss
reserves in its property-casual business by $3.6 billion,
representing about 6% of AIG's total property-casual net
reserves.
The company will sell its Advisor Group to private-equity firm
Lightyear Capital LLC and Canadian pension manager PSP Investments.
The sale of the broker-dealer network, for which financial terms
weren't disclosed, is expected in the second quarter.
AIG also plans to execute a 19.9% public offering of United
Guaranty Corp., in what it called a first step toward full
separation. The insurer increased its expense-reduction target to
$1.6 billion within two years, up from an earlier plan to shave
costs by $1 billion to $1.5 billion by 2017.
"With these actions, AIG has taken another major step in
simplifying our organization to be a leaner, more profitable
insurer," Mr. Hancock said.
AIG nearly collapsed into bankruptcy court in 2008 amid the
worsening global liquidity crunch, and to pay back its nearly $185
billion government bailout, it sold over 50 businesses and other
assets, generating more than $90 billion in proceeds, according to
its figures.
When the crisis hit, AIG was a globe-straddling
financial-services behemoth with an airline-leasing unit and a
large financial-products unit, among other non-insurance
businesses. In selling assets, it scaled back mostly to world-wide
sales of property-casualty insurance, both to businesses and
consumers, and a U.S.-focused life-insurance and
retirement-services business.
Lately, AIG has been under mounting pressure to improve results.
Mr. Icahn, who last year called AIG "too big to succeed," in
November disclosed a stake of more than 42 million AIG shares,
translating to $2.61 billion and roughly 3% of the company.
Together with fellow billionaire John Paulson, Mr. Icahn has
called for AIG to pursue a split into three separate companies,
arguing that each of those companies would be small enough to avert
the "systemically important financial institution," or SIFI,
designation, which carries heightened scrutiny and requirements to
hold robust capital buffers against losses. He said in an open
letter to AIG's board last week that he wouldn't be satisfied with
"small-scale asset sales and incremental cost-cutting."
The board Chairman Mr. Steenland said "being a nonbank SIFI is
not currently a binding constraint on return of capital." He said a
"lack of diversification benefits would reduce capital available
for distribution, and there would be a loss of tax benefits."
Write to Leslie Scism at leslie.scism@wsj.com and Lisa Beilfuss
at lisa.beilfuss@wsj.com
(END) Dow Jones Newswires
January 26, 2016 11:44 ET (16:44 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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