AIG - American International Group

[racemize]

I'm meeting someone tomorrow that is an outstanding investor and I understand AIG is his largest holding. Assume for a second that you were in my shoes and held the same opinion of this guy.

 

What would your top three questions to him be?

 

Well given my bullish thoughts, I'd ask him what, if anything, he sees that is a concern for AIG over the long term.

[MrB]

I'm meeting someone tomorrow that is an outstanding investor and I understand AIG is his largest holding. Assume for a second that you were in my shoes and held the same opinion of this guy.

 

What would your top three questions to him be?

 

Well given my bullish thoughts, I'd ask him what, if anything, he sees that is a concern for AIG over the long term.

 

I hope you don't mind me flipping this on you, but what are your 3 biggest concerns?

[PlanMaestro]

I hope you don't mind me flipping this on you, but what are your 3 biggest concerns?

 

1. US casualty

2. Low rates

3. High expense ratio by historic standards

4. Is there something that nobody is discussing

[MrB]

I hope you don't mind me flipping this on you, but what are your 3 biggest concerns?

 

1. US casualty

2. Low rates

3. High expense ratio by historic standards

4. Is there something that nobody is discussing

 

TNX

[gokou3]

I'm meeting someone tomorrow that is an outstanding investor and I understand AIG is his largest holding. Assume for a second that you were in my shoes and held the same opinion of this guy.

 

What would your top three questions to him be?

 

As the Euro situation plays out badly (Greece exiting Euro, bond mutualization, bank failures / runs, etc.), would it trigger any hidden bombs (aka AIGFP 2)?

[Uccmal]

Mr B. 

 

Reserving and pricing for the years 2009-2011.

 

I.e. Were they lowballing to keep business after the crash. 

[CONeal]

I'm meeting someone tomorrow that is an outstanding investor and I understand AIG is his largest holding. Assume for a second that you were in my shoes and held the same opinion of this guy.

 

What would your top three questions to him be?

 

My concern once the implied gov't backstop is removed that the ratings agency will downgrade them.  In one of the congressional hearings I think AIG alone was 2 or 3 notches lower without the goverment.  What makes him think that AIG's rating will be good enough where ample liquidity is not needed.  (This is really the only thing tht keeps me up at night regarding this investment).

[mankap]

I will have the following questions

Does he sees any substantial Asset write downs in future

When does he see Chartis turnaround happening

[enoch01]

Mr B. 

 

Reserving and pricing for the years 2009-2011.

 

I.e. Were they lowballing to keep business after the crash.

 

Seconded.

[mankap]

NY Fed sells $1.9bn tranche of AIG assets.

 

Looks like Fed loan has already been paid.Money from the current auction should flow to AIG.I was expecting that AIG will get $2B from current auction , but with Fed already having been paid ,AIG could get $3-5B from the current $7B Auction.

 

Jay Wintrob, an AIG executive, said separately on Wednesday that previous auctions this year had already raised sufficient sums to repay the loan, which would be a milestone for both the New York Fed and AIG.

 

http://www.ft.com/intl/cms/s/0/80721c16-b5a1-11e1-b8d0-00144feabdc0.html#axzz1xjilU1x5

[HJ]

I'm meeting someone tomorrow that is an outstanding investor and I understand AIG is his largest holding. Assume for a second that you were in my shoes and held the same opinion of this guy.

 

What would your top three questions to him be?

 

In the latest round of stress test by the Fed, Met came out quite bad, and has complained that the Fed shouldn't be stress testing insurance companies the same way they stress test banks.  I'd imagine similar issue exists as it relates to Sun America, maybe also  Chartis to a lesser extent.  How does one handicap that into the capital management story given the prospect of Fed regulation soon?

[gokou3]

Jay Wintrob, an AIG executive, said separately on Wednesday that previous auctions this year had already raised sufficient sums to repay the loan, which would be a milestone for both the New York Fed and AIG.

If I have been keeping track correctly, the total face value of the securities sold is $12.4B (Based on Mar. 31 Fed figures for Max, Triaxx, Duke, and Putnam).  The loan balance was $9B.  Reasonable to assume the CDOs were sold at approximately 72% par? (Of course there's also some principal paydown from the entire portfolio).

 

$34.4B face value to go!  Should be obvious now why Bensmoche said the USG will make $10B+ profit from AIG.

[racemize]

NY Fed sells $1.9bn tranche of AIG assets.

 

Looks like Fed loan has already been paid.Money from the current auction should flow to AIG.I was expecting that AIG will get $2B from current auction , but with Fed already having been paid ,AIG could get $3-5B from the current $7B Auction.

 

Jay Wintrob, an AIG executive, said separately on Wednesday that previous auctions this year had already raised sufficient sums to repay the loan, which would be a milestone for both the New York Fed and AIG.

 

http://www.ft.com/intl/cms/s/0/80721c16-b5a1-11e1-b8d0-00144feabdc0.html#axzz1xjilU1x5

 

maybe they haven't updated this yet, but the website has them with 3.5 billion left (I can't remember if that is what it was before this latest sale though):

http://www.newyorkfed.org/markets/maidenlane.html#maidenlane3

[nkp007]

4 years ago, we probably thought we'd never see this day.

 

New York Fed Announces Full Repayment of its Loans to Maiden Lane LLC and Maiden Lane III LLC

http://www.newyorkfed.org/newsevents/news/markets/2012/an120614.html

 

NEW YORK – The Federal Reserve Bank of New York today announced that its loans to Maiden Lane LLC (ML LLC) and Maiden Lane III LLC (ML III LLC) have been fully repaid with interest.  The original amounts of these loans were $28.82 billion and $24.3 billion respectively. Maiden Lane II LLC repaid all of its obligations earlier this year.

 

William C. Dudley, president of the New York Fed, said, “This is a major milestone for the Bank and for the public. The successful repayment of the New York Fed’s loans to ML LLC and ML III LLC marks the retirement of the last remaining debts owed to the Bank that stemmed from the crisis-era interventions with Bear Stearns and AIG.  The Maiden Lane entities were established to protect the U.S. economy at a time of great economic stress, and I am pleased we were able to accomplish that policy objective and be fully repaid.”

 

The New York Fed, through BlackRock Solutions, will continue to sell the remaining assets from the ML LLC and ML III LLC portfolios as market conditions warrant and if the sales represent good value for the public.  There is no fixed timeframe for these sales. In accordance with the LLCs’ agreements, proceeds from future sales in ML LLC will be used to retire the subordinated loan extended by JPMorgan Chase & Co., after which the New York Fed will receive all residual profits, and proceeds from future sales in ML III LLC will be used to repay the equity contribution extended by AIG, after which the New York Fed will receive two-thirds of residual profits.

 

The New York Fed will continue to provide information regarding any subsequent sales as part of its regular disclosures, including lists of any holdings sold by ML LLC and ML III LLC within the previous month and quarterly updates on total proceeds from sales. The repayments will be reflected in the June 21, 2012 publication of the H.4.1. For more information, visit Maiden Lane Transactions.

[mankap]

It has happened earlier than I expected.This will result in increase in Book value.

 

ML III is carried at $5.7B in the Balance sheet as of Q1'12.

If we assume that the rest of MLIII assets are sold at 70c , AIG will receive >$7B.

This will result in increase in Book value by around 1$/share.

[ERICOPOLY]

ML III is carried at $5.7B in the Balance sheet as of Q1'12.

If we assume that the rest of MLIII assets are sold at 70c , AIG will receive >$7B.

This will result in increase in Book value by around 1$/share.

 

What is the meaning of this 2/3 of residual profits?  Is that "profit" the excess above the $5.7B on AIG's balance sheet?  What constitutes a "residual profit" that the Fed will take 2/3 of?

 

proceeds from future sales in ML III LLC will be used to repay the equity contribution extended by AIG, after which the New York Fed will receive two-thirds of residual profits

[racemize]

ML III is carried at $5.7B in the Balance sheet as of Q1'12.

If we assume that the rest of MLIII assets are sold at 70c , AIG will receive >$7B.

This will result in increase in Book value by around 1$/share.

 

What is the meaning of this 2/3 of residual profits?  Is that "profit" the excess above the $5.7B on AIG's balance sheet?  What constitutes a "residual profit" that the Fed will take 2/3 of?

 

proceeds from future sales in ML III LLC will be used to repay the equity contribution extended by AIG, after which the New York Fed will receive two-thirds of residual profits

 

my understanding was that they get 2/3 of everything after the 5.7 billion is paid to AIG.  so the next 5.7 is 100% AIG, then 2/3 / 1/3 split.

[gokou3]

ML III is carried at $5.7B in the Balance sheet as of Q1'12.

If we assume that the rest of MLIII assets are sold at 70c , AIG will receive >$7B.

This will result in increase in Book value by around 1$/share.

 

What is the meaning of this 2/3 of residual profits?  Is that "profit" the excess above the $5.7B on AIG's balance sheet?  What constitutes a "residual profit" that the Fed will take 2/3 of?

 

proceeds from future sales in ML III LLC will be used to repay the equity contribution extended by AIG, after which the New York Fed will receive two-thirds of residual profits

 

Money flow chart: http://www.newyorkfed.org/markets/maidenlane.html

http://www.newyorkfed.org/images/ml/ml3_chart5.gif

 

We are at the second-to-the-bottom stage.

[mankap]

My understanding is same as 'race'.

After AIG is paid 5.7B , the remaining amount will be split between Fed and AIG.Fed will get 2/3 and AIG gets 1/3.

As of last week, Net portfolio holding of MLIII were $15.2B.

Assuming the portfolio is sold at 70c, Fed will get 10.6B.

After AIG's 5.7B ,AIG gets 1/3rd of the residual which is 1.63B.

So in total AIG get 5.7+1.63=$7.33B.

 

 

[ERICOPOLY]

Thanks!

[MrB]

Trying to do this in one post. Please let me know if I missed anything or anyone.

Background

There are obviously limits to what I can disclose, but this firm has a multi generational value pedigree and the person I met, according to press reports, has a 22% compounded track record over quite a long run. I think it was in a leveraged vehicle though.

More interesting for me is that this guy was short AIG all the way down and has gone long some time ago. I thought he was well informed and had a good crasp on what is knowable in an insurance company and that which is not. He also had a good grip on weighing different factors in the investment decision. Now to the individual questions.

 

 

racemize

Well given my bullish thoughts, I'd ask him what, if anything, he sees that is a concern for AIG over the long term.

Nothing that has not been covered on this board.

Plan

1. US casualty Mediocre business

2. Low rates Interest rates I assume. Probably not a good thing. Might be a wash, but probably too complex to know the exact impact

3. High expense ratio by historic standards It's a problem. They say it is going to come down, but insurance execs always say that

4. Is there something that nobody is discussing AIG is not being discussed...period. Still deep scars, under owned and under followed.

 

gokou3

As the Euro situation plays out badly (Greece exiting Euro, bond mutualization, bank failures / runs, etc.), would it trigger any hidden bombs (aka AIGFP 2)?

ONLY PICKED UP THIS QUESTION AND THE REST AFTER THE MEETING

Not discussed in that context, but did talk about AIGFP. My concern is that all the "bombs" are what is left, because it is probably what they could not sell. He does not think it is a concern, just think what is left is akin to GenRe's residual portfolio. Very long term contracts (up to 25 years) that cannot be unwound now.

 

Uccmal

Reserving and pricing for the years 2009-2011.

 

I.e. Were they lowballing to keep business after the crash.

Yes up to 2010. Word in the market place is that AIG was big reason for the soft market, but that has changed since sometime in 2010. How the general feeling is that AIG is driving the hard market

 

CONeal

My concern once the implied gov't backstop is removed that the ratings agency will downgrade them.  In one of the congressional hearings I think AIG alone was 2 or 3 notches lower without the goverment.  What makes him think that AIG's rating will be good enough where ample liquidity is not needed.  (This is really the only thing tht keeps me up at night regarding this investment).

We did not talk about it, but if you invert and think under what circumstances would the implied backstop not be implied anymore. What does it take? Gov coming out and stating it? Is that likely to happen? Valid point and worth exploring

 

mankap

Does he sees any substantial Asset write downs in futurePossible, but improbable

When does he see Chartis turnaround happeningAlready happening, although he thinks it is a mediocre business. Benmosche's incentives came up a few times. In this context he said that you just need to look at Ben's incentives. Good point and worth exploring on the board

 

HJ

In the latest round of stress test by the Fed, Met came out quite bad, and has complained that the Fed shouldn't be stress testing insurance companies the same way they stress test banks.  I'd imagine similar issue exists as it relates to Sun America, maybe also  Chartis to a lesser extent.  How does one handicap that into the capital management story given the prospect of Fed regulation soon? We did not talk about that. However, Ben has covered that in some detail in conference calls and I buy the story. They have planned for the possibility and since they are close to the Fed they know what to expect. Also remember the Gov has a big incentive to ensure they pass whatever stress test is put to AIG

 

 

 

[MrB]

My understanding is same as 'race'.

After AIG is paid 5.7B , the remaining amount will be split between Fed and AIG.Fed will get 2/3 and AIG gets 1/3.

As of last week, Net portfolio holding of MLIII were $15.2B.

Assuming the portfolio is sold at 70c, Fed will get 10.6B.

After AIG's 5.7B ,AIG gets 1/3rd of the residual which is 1.63B.

So in total AIG get 5.7+1.63=$7.33B.

 

What about the JPM loan?

[MrB]

Anybody has a good grip on Ben's incentives? Maybe worthwhile to look at Hancock's too. Any thoughts? Will get around to looking at it next week myself, but somebody might be able to throw something into the ring before

[Uccmal]

Thanks MrB... Well done. 

[Uccmal]

So, now that AIG has cash coming on their balance sheet again what does everyone think the next Fed. Reserve stock sale will price at.  The market seems to be pricing it around 30.50 again.