American International Group Inc (NYSE:AIG) under pressure from activist investor, Carl Icahn to split the company into three companies. However, it is exploring alternatives, and relying on its resilience-legacy under CEO Robert Benmosche.
Ichan’s demands have intensified after Metlife Inc (NYSE:MET) opted to split or spin-off to shed its SIFI status, and thereby stash more working capital.
Back in 2009, the country’s largest insurance provider had come under unprecedented pressure to fund a bailout by selling assets. The CEO Benmosche during that period had overcome intense government pressure, since it was the largest investor, to sell.
Benmoche had negotiated hard ensuring higher prices for every unit and derivative contract. His efforts resulted in $22.7 Billon profits for the US government eventually.
Now, 7 years down the road, a similar feat, but of lesser epic proportions is required from present CEO, Peter Hancock. Despite Ichan’s hard pressure to split the company, Hancock is yet to register a response.
Demands have to be addressed
Commenting on Hancock’s reticence to Ichan’s demand for ‘time to act is now,’ a key analyst, Robert Haines, at Credit Sights said, the CEO had to respond. This was despite the lesser challenges posed by Ichan’s demands, in comparison to 2009 requirements. Further delay, by Hancock would adversely affect the stocks as shareholders may begin to withdraw.
American International Group Inc (NYSE:AIG) along with Metlife Inc (NYSE:MET) is designated by the US Federal Bank as a SIFI (Systemically Important Financial Institution), requiring the companies to maintain high capital reserve ratio.
Hancock opines that the shedding SIFI-status is not as important, since the tri-furcation of the company would ‘erode’ value of tax assets.
This would in turn affect the credit rating of American International Group Inc(NYSE:AIG), Hancock concluded. This could be true for Moody’s announced that it is evaluating Metlife for a downgrade.
Analysts believe that AIG would not consider such drastic ‘dismantling.’
Hancock has indicated similar stance in his latest staff letter, in which is said that the management had a ‘prudent insightful plan.’
Many analysts concur that investors would settle for a strategy which allowed American International Group Inc (NYSE:AIG) to exit SIFI-tag in the next couple of years.
