AIG - American International Group

[hardincap]

IMO financials are not getting any love because there is a pervading sense that something really bad is about to happen. Just look at the financial headlines over the last year--Greece protests, Spanish debt crisis, Italy debt crisis, Germany vs rest of europe, Eurozone break up, putback lawsuits, morbid housing data, unemployment.....

[txlaw]

Last year regarding his financial purchases Berkowitz said "in a year we'll know if I'm smart or dumb". This year he's saying he doesn't know why 1 revolution around the sun means anything.

 

Anyone have any thoughts on this?

 

I cannot recall when Berkowitz said that, but my interpretation of the comment is that he was saying that in a year, people would start to realize that the US financial system was not going to go belly up because of Europe imploding or because of another derivatives blow up that would require another bailout of the "black box" financial sector or because of a double dip recession. 

 

He was right.  People are starting to get that the US financial system is strong because of the actions that the Feds have taken and because of the actions taken by management at these companies, particularly at the big banks.  Heck, now that WEB has come out with the exact same view, people are ready to start jumping on the bandwagon.

 

I do not believe Berkowitz was saying that he expected or desired parabolic price action on the US financials within a year.

 

He also says he wants people to tell him why he's wrong, but refuses to talk to Einhorn about JOE. What the??

 

Well, I do recall him either implying or outright saying that Einhorn was trying to "attack" the company.  Berkowitz does not seem like the type of guy who is going to arrange for a meeting with someone who is trying to manipulate or attack an investee company.

 

Don't get me wrong -- I have no view on whether or not Einhorn actually was "attacking" the company, as I've never really done any sort of analysis of JOE and don't particularly care to invest in such a company.  In fact, I believe JOE took a write down on its property earlier this year, so perhaps Einhorn was right and management saw the errors in their ways.  Or perhaps management was going to take a write-down in any case and Einhorn was simply capitalizing on this by anticipating the action.

 

I have no idea.

[hardincap]

Last year regarding his financial purchases Berkowitz said "in a year we'll know if I'm smart or dumb". This year he's saying he doesn't know why 1 revolution around the sun means anything.

 

Anyone have any thoughts on this?

 

I cannot recall when Berkowitz said that, but my interpretation of the comment is that he was saying that in a year, people would start to realize that the US financial system was not going to go belly up because of Europe imploding or because of another derivatives blow up that would require another bailout of the "black box" financial sector or because of a double dip recession. 

 

He was right.  People are starting to get that the US financial system is strong because of the actions that the Feds have taken and because of the actions taken by management at these companies, particularly at the big banks.  Heck, now that WEB has come out with the exact same view, people are ready to start jumping on the bandwagon.

 

I do not believe Berkowitz was saying that he expected or desired parabolic price action on the US financials within a year.

 

He also says he wants people to tell him why he's wrong, but refuses to talk to Einhorn about JOE. What the??

 

Well, I do recall him either implying or outright saying that Einhorn was trying to "attack" the company.  Berkowitz does not seem like the type of guy who is going to arrange for a meeting with someone who is trying to manipulate or attack an investee company.

 

Don't get me wrong -- I have no view on whether or not Einhorn actually was "attacking" the company, as I've never really done any sort of analysis of JOE and don't particularly care to invest in such a company.  In fact, I believe JOE took a write down on its property earlier this year, so perhaps Einhorn was right and management saw the errors in their ways.  Or perhaps management was going to take a write-down in any case and Einhorn was simply capitalizing on this by anticipating the action.

 

I have no idea.

 

i think thats a generous interpretation. if einhorn was out to attack joe, why woudl he first offer to debate privately with berkowitz before he went public? he did the same with tepper on goodyear tires, and was pursuaded by tepper to cover.

 

i love berkowitz' thesis on wells fargo, absolute classic, but some fo the things he's said in public over the last few years quite frankly make me question his character.

[rranjan]

 

 

i love berkowitz' thesis on wells fargo, absolute classic, but some fo the things he's said in public over the last few years quite frankly make me question his character.

 

Can you give example of some of his statements which made you question his character?

[Uccmal]

are there any bears (or at least not bulls) on AIG around?  I could use some considered views on the other side...

 

I think the bulk of the institutional investors are bearish, as indicated by the above slide.  If not bearish, they are certainly afraid... Well, sucks to be them....

 

Anything that applies to diversified insurance companies applies to AIG:

1) persistent low interest rates

2) megacats

Etc., etc., etc

 

[mankap]

Goldman upgrades AIG with $40 target

 

http://www.thestreet.com/story/11527939/1/aig-gets-a-buy-call-from-goldman-sachs.html?puc=yahoo&cm_ven=YAHOO

 

Expectations of improving performance at Chartis also led to the upgrade. "Changes are taking place at Chartis that we think will yield improved results in future periods. In addition, a better overall pricing environment provides a backdrop that is also conducive to improving returns at Chartis, and we continue to hear from the marketplace that AIG is taking a very disciplined approach to pricing," the report said.

[MrB]

From recent CC

 

"Bob Benmosche - American International Group Inc - CEO

Yes, I'm going to turn it over to Bill Dooley. But first of all, ML3 is being sold by the Federal Reserve and they go through the positions as they see fit and it's up to the Federal Reserve to decide how they want to liquidate it. MAX was the biggest one in the portfolio and the most complex from our point of view, so it was -- in our view it was a very successful sale. As we think about those sales, we could also be a buyer. So for the insurance companies, we saw some value in the sale of MAX. In fact, we bought $600 million of the positions in the insurance companies as part of our investment portfolio. So we don't see anything that, here at AIG that would represent a constraint on the Federal Reserve to sell ML3 assets and.......

 

Bob Benmosche - American International Group Inc - CEO

In the meantime, we see no constraint right now to our capital management.We're going to continue to look at our capital, look at our non-core assets. The selling of ILFC is not only about capital management, it's about recognizing it's a non-core business. It has a huge debt load ($24Bn not guaranteed by AIG- my comment) and it's a business that doesn't fit the insurance business. So we feel that's a business we should not be in and to the extent it provides us a lot more capital, that's great because it helps us with capital management. But it's also about de-risking the Company and that's another aspect of it. So in combination we're doing things that makes the most sense for this Company, its credit ratings and our future....

 

Peter Hancock - American International Group Inc - CEO - Chartis

Well the first thing is that we think about capital through an economic lens first but recognize that life in an insurance company with multiple constraints is a little bit more complex than that. So we look at multiple binding constraints whether they be rating agency, view of capital, or regulatory view of capital but we start with our true north which is an economic view of risk which drives the amount of capital needed to support that risk. Secondly, consistent with our reorganization, we think about it globally. So the commercial lines run by John Doyle has under him individuals responsible for the global allocation of capital. So George Stratts, for instance, is running global property thinks about optimal capital

allocation to where he's getting fairly compensated for the exposure we're taking.

We measure performance using risk adjusted profitability which is ROE minus a cost of capital times the amount of capital deployed.That metric is still in its early stages of implementation but we have it calculated at a fairly granular level and its increasingly being used as a measure of peoples success. In terms of incentives, we think that the right way to incentivize people in this business is over the medium to long-term, so any single period risk adjusted profit number needs to be put in a broader context where in particular looking at changes and improvement as opposed to the absolute number but we feel that there's been much more rapid uptake over this framework for thinking about how to properly balance growth, profitability and risk towards growing value than I could ever have hoped So I'm very pleased with the progress....

 

The following makes me go uhmmmm...

 

Michael Nannizzi - Goldman Sachs - Analyst

Just picking up on Keith's question a little bit. I see the -- I guess, for John and Peter, the mix shift and the impact it had on the expense ratio but as you move along this path given the expense investments you're making and the mix shift towards higher expense, lower loss business, when should Chartis begin to see underlying accident year profitability? I guess along those lines, Peter you mentioned the aspirational goals, were here at 100ish.Where do we have to be at year-end for you to feel confident that we're on track to get to the aspirational goals by 2015. One follow-up if I can, thank you.

Peter Hancock - American International Group Inc - CEO - Chartis

Well, I think that there's some one-off items that make the recent short-term trend in the expense ratio inconsistent with what my longer term trend expectation would be. So I'd expect the expense ratio towards the end of the year to be between 32% and 33% but to be honest we are absolutely focused not on targeting a specific expense ratio.We're really looking at the ROE and making the right tradeoff between stable loss ratio improvement and whatever it takes to spend to get that in terms of infrastructure, distribution, to get the best mix of sustainable business. So the infrastructure investments that are sort of heavy in nature are going to sort of peak in mid 2013.We've talked about that consistently over the last year and the benefits from those will be long-term cost advantages and scalability of platforms through better shared services and so on. But importantly, I look at the large amount of expense that's in claims that's classified within the loss ratio and I really want to be agnostic about whether a cost is classified as loss ratio or expense ratio. I'm not trying to -- given the huge variety of businesses that we have benchmarking our expense ratio against others is very hard to do. So the bottom line on a risk adjusted basis is a much better way to judge whether we're making progress and we feel very good about our ability to deliver the target ROE by 2015...

 

 

[nkp007]

Lol. Look who is enjoying the Miami Heat...!

 

https://twitter.com/#!/crowdturtle/status/200379472539697154

[CONeal]

Lol. Look who is enjoying the Miami Heat...!

 

https://twitter.com/#!/crowdturtle/status/200379472539697154

 

 

Probably trying to recruit LeBron to invest a little money.  :D

 

[Grenville]

Lol. Look who is enjoying the Miami Heat...!

 

https://twitter.com/#!/crowdturtle/status/200379472539697154

 

nice find! lol

[gokou3]

Successful sale of the $2.5B face value TRIAXX CDO:

 

http://finance.yahoo.com/news/ny-fed-sells-assets-aig-175442637.html

 

Before this sale,

The fair value of the Maiden Lane III portfolio was $20.21 billion on May 2, according to Fed data.

[racemize]

Press release on the treasury sale.

 

http://www.marketwatch.com/story/aig-announces-the-us-department-of-the-treasury-completes-offering-of-aig-common-stock-2012-05-10?reflink=MW_news_stmp

 

[PlanMaestro]

Successful sale of the $2.5B face value TRIAXX CDO:

 

http://finance.yahoo.com/news/ny-fed-sells-assets-aig-175442637.html

 

 

William Dudley, the president of the New York Fed, said the winning bids were “materially higher” than the original prices Maiden Lane III paid for the securities and that they “represent good value for the public”.

 

[vinod1]

Warrant Agreement Section 4.04 indicates that in the event of a consolidation or merger, the warrant holder has the right to get the same securities as the common stock holder by exercising the warrant. In this case the time value of the warrant is lost and I do not see any adjustment for this. Although very unlikely this is one additional risk warrant holders face that common stock holders do not have to worry about.

 

The other scenario where some of the time value is lost is if AIG sells a big chunk of itself like Sun America and the warrant would be adjusted by the amount of its fair value but the time value for the Sun America portion of AIG would be lost. I cannot think of other scenarios where warrant holder is at risk compared to the common stock holder.

 

    SECTION 4.04. Reorganizations. In the event of any capital reorganization, consolidation or merger of the Company (other than the consolidation or merger of the Company with or into another corporation in which the Company is the continuing corporation and which does not result in any reclassification of the outstanding shares of Common Stock or the conversion of such outstanding shares of Common Stock into shares of other stock or other securities or property) (a “Reorganization”), the Holders of Warrants that have not been exercised (and have not otherwise expired, been terminated or cancelled) shall have the right to receive, upon exercise of the Warrants and payment of the Exercise Price, the kind and amount of securities, cash and other property receivable upon such Reorganization by a Holder of the number of shares of Common Stock into which such Warrants so exercised might have been exercised immediately prior to such Reorganization. Unless the surviving or acquiring Person in a Reorganization automatically assumes the Company’s obligations hereunder as a matter of law, the Company shall provide that the surviving or acquiring Person in such Reorganization will enter into an agreement with the Warrant Agent confirming the Holders’ rights pursuant to this Section 4.04 and providing for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article IV.

 

 

Vinod

[CONeal]

Fed looking for a couple more ML3 sales this month.

 

http://www.foxbusiness.com/news/2012/05/11/new-york-fed-to-sell-eight-more-maiden-lane-iii-bonds-in-may/

 

[racemize]

I hope they get all these MLIII's out before any market turn.  Keep up the pace!

[racemize]

Insider buys at AIG and BAC.

 

http://community.nasdaq.com/News/2012-05/weekly-top-insider-buys-msft-bac-aig-spg-oks.aspx?storyid=141019

[gokou3]

Fed looking for a couple more ML3 sales this month.

 

http://www.foxbusiness.com/news/2012/05/11/new-york-fed-to-sell-eight-more-maiden-lane-iii-bonds-in-may/

 

The exact securities:

https://mninews.deutsche-boerse.com/index.php/ny-fed-take-bids-select-maiden-lane-iii-paper?q=content/ny-fed-take-bids-select-maiden-lane-iii-paper

[racemize]

Fed looking for a couple more ML3 sales this month.

 

http://www.foxbusiness.com/news/2012/05/11/new-york-fed-to-sell-eight-more-maiden-lane-iii-bonds-in-may/

 

The exact securities:

https://mninews.deutsche-boerse.com/index.php/ny-fed-take-bids-select-maiden-lane-iii-paper?q=content/ny-fed-take-bids-select-maiden-lane-iii-paper

 

anyone figured out how many billions that leaves in MLIII?

[gokou3]

anyone figured out how many billions that leaves in MLIII?

 

See "Holdings Report".  Face value of $46.8B as of Mar. 31, 2012 (vs Fair value ~$18B).  After sales of MAX ($7.5B) and TRIAXX ($2.5B), the remaining face value should be ~$36.8B.  After this and next weeks' sales of Duke and Putnam, the remaining face value is reduced by a further $2.4B.  No sale price has officially been disclosed yet.

 

http://www.newyorkfed.org/markets/maidenlane.html

 

 

[mankap]

 

This is as per May 9 Fed report.

http://www.federalreserve.gov/releases/h41/current/

$20B Net holding is as per March 31.After Fed get its share the rest should flow to AIG.

So probably $10-15 B left in Maiden lane depending upon what price they got in Auction.

                                                                                                                    Wednesday 

Account name                                                                                                            May 9, 2012

 

Net portfolio holdings of Maiden Lane III LLC (1)                                                                                                              20,323

 

Outstanding principal amount of loan extended by the Federal Reserve Bank of New York (2)                                        7,972

Accrued interest payable to the Federal Reserve Bank of New York (2)                                                                            733

Outstanding principal amount and accrued interest on loan payable to American International Group, Inc. (3)                5,606

 

1. Fair value. Fair value reflects an estimate of the price that would be received upon selling an asset if the transaction were to

  be conducted in an orderly market on the measurement date. Revalued quarterly. This table reflects valuations as of

      March 31, 2012. Any assets purchased after this valuation date are initially recorded at cost until their estimated fair

  value as of the purchase date becomes available.

2. Book value. This amount was eliminated when preparing the Federal Reserve Bank of New York's statement of condition consistent

  with consolidation under generally accepted accounting principles. Refer to the note on consolidation accompanying table 9.

3. Book value. The fair value of these obligations is included in other liabilities and capital in table 1 and in other liabilities

  and accrued dividends in table 8 and table 9.

 

[robface]

Please excuse my inexperience in advance at looking at insurers, but I had a few questions and was wondering if you guys already looked into these issues:

 

How do you use statutory financials versus GAAP?  I'm just curious because when I look at the statutory "policy holders surplus" (which I think is essentially equity), the amount is $29 billion for AIG.  However, in the GAAP filings, its more like $100 billion.

 

Along those lines, it was my impression that the statutory filings were used more to look at a liquidation scenario (e.g., no deferred acquisition costs and the like)...how would you value each segment as a run-off?

 

Looking at the latest GAO report, it says:  "According to AIG, a further downgrade of Chartis’s financial strength rating from a leading rating agency could, in the extreme, irreparably harm Chartis’s worldwide businesses, potentially putting Chartis into “run-off”, meaning that it could only service business left with the company as it could not effectively write profitable, new business."  Of course AIG has to cover their bases, but how likely is it that this extreme case happens? 

 

How likely is a downgrade?  I remember reading somewhere (but can't remember where) that AIG's rating is propped up because the federal government is backing AIG.  Once the feds reduce its stake significantly, is a downgrade imminent?  What is the risk of such a downgrade (and subsequent run-off)?  Or, will the rating always be "propped up" because AIG is a SIFI?

 

Any idea how large the litigation expense could be?  Looks pretty sizable based on the disclosures in the annual report.

 

[PlanMaestro]

Latest ML III sale postponed.

[Uccmal]

Latest ML III sale postponed.

 

Yes, followed by another example of Mr. Market's irrationality.  The last sale of shares was at 30.50 which to me at least indicates a floor under the stock price. 

[sdev]

A great time to nibble on some shares.  :P