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Icahn takes interest in AIG, calls for breakup

Activist financier Carl Icahn pronounced he owns a “large stake” in American International Group Inc (AIG.N) and urged a insurer to spin off a life and debt units into open companies to equivocate being tagged as a systemically critical financial institution.

AIG’s shares shot adult as many as 4 percent in complicated trade on Wednesday after Icahn expelled his proposal, that he pronounced was upheld by sidestep account manager John Paulson. Paulson, that owns 1.1 percent of AIG, combined a quote to Icahn’s minute that pronounced AIG can trade over $100 per share.

AIG shares rose as many as 4 percent to $63.44 in morning trading.

Icahn’s call to mangle adult AIG into 3 tools puts a spotlight on a pivotal partial of a 2010 U.S. financial remodel famous as Dodd-Frank. The legislation mandated that all banks with some-more than $50 billion in resources be regulated by a Federal Reserve, and that certain non-bank entities come underneath a Fed’s management as well.

The nearby fall of AIG in 2008 was a pushing force for Dodd-Frank’s inclusion of non-bank entities in a financial remodel package, as a insurer perceived $182.3 billion in sovereign bailout money.

Four U.S. companies are labeled non-bank “Systemically Important Financial Institutions” (SIFIs) and are therefore subjected to extended law and organisation by a Fed: AIG, GE Capital, Prudential Financial and MetLife Inc (MET.N).

That kind of oversight, that also entails aloft collateral cushions, will be tough for AIG to shed, some analysts said.

“We consider a spin-off of AIG’s debt insurer, joined with an assertive cost slicing campaign, are a many approaching outcomes. However, we do not see AIG avoiding SIFI standing given a prior supervision bailout,” pronounced Cathy Seifert from SP Capital IQ.


The “SIFI” tag, that is practical by a organisation of U.S. regulators famous as a Financial Stability Oversight Council (FSOC) indicates concerns that a company’s disaster competence endanger a financial system.

Other companies have also been fervent to strew a designation, including General Electric Co (GE.N), that announced this year that it was offered off vast sections of GE Capital, in partial to strew a con and costs of being a non-bank SIFI. MetLife has sued a U.S. supervision to criticism a designation.

Icahn pronounced in an open minute to AIG on Wednesday that a apart companies would be tiny adequate to equivocate a designation. He also pronounced AIG should start “much needed” cost cuts to improved compete. (bit.ly/1M1Sxtf)

While AIG Chief Executive Peter Hancock pronounced in a matter that a insurer maintains a dialog with all of a shareholders “and welcomes their feedback and ideas,” it has hired advisors to assistance urge opposite Icahn’s proposal, according a chairman informed with a matter.

The romantic investor, who did not divulge a distance of his stake, pronounced several vast shareholders, including Paulson, were undone and upheld a break-up of AIG. Icahn’s campaigns have forced changes during companies such as Apple Inc (AAPL.O), eBay Inc (EBAY.O), and Chesapeake Energy Corp (CHK.N).

AIG is a largest association targeted by an romantic this year, Thomson Reuters information show.

“AIG is honestly overdue in following in a footsteps of all other vital multi-lines in violation adult Life and PC into apart companies,” Paulson pronounced in a matter in Icahn’s letter.

AIG has rebounded from a financial crisis. In Aug it some-more than doubled a quarterly division and lifted a share-repurchase aim by $5 billion. But a underwriting operations have suffered from descending rates for blurb skill and misadventure word as grant supports have flooded a attention in hunt of yield.

AIG is trade next a book value of $79.74. Rival Prudential Financial Inc’s (PRU.N) book value is $92.33, and a shares traded adult 2.3 percent to $82.93 on Wednesday.

Hancock, has targeted a lapse on equity (ROE) of 10 percent over a long-term, adult from 8 percent in a second entertain – a aim Icahn pronounced would still loiter a peers.

If a association spins off a life and debt word businesses, it would still have vast blurb and consumer word operations.

Some analysts voiced doubt during a awaiting of a breakup.

“It would be a mistake to consider such a separate could be achieved fast or simply deliberation a company’s estimable regulatory slip and holding association obligations that are eventually corroborated by a full organization,” RBC Capital Markets researcher Mark Swelle wrote in a note.

AIG is approaching to news third-quarter gain on Monday.

“We have taken critical and poignant stairs to reposition AIG by both simplifying and de-risking a company, and realizing appealing valuations from non-core item sales,” Hancock pronounced in a statement.

(Editing by Savio D’Souza and Christian Plumb)

Article source: http://www.reuters.com/article/2015/10/28/us-icahn-aig-idUSKCN0SM1O920151028

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