AIG - American International Group

[berkshiremystery]

I bought $10 strike 2014.  I paid a $1 premium which is like borrowing $10 per share at 5% interest rate paid in full upfront and giving up any dividends (looks like all cash is coming back via buybacks).

 

1.5x leverage.

 

Ericopoly,... you got me somehow confused,... ::)

Have you really bought the deep in the money $10 strike 2014 AIG leaps,... don't they trade around $20-21 something,... ??? ... why leaps with such a low strike price?

 

Yes I bought the $10 strike 2014 AIG calls.  I paid $20.20, $20.30, and $20.40. 

 

The low strike price is to do with the fact that I can't stomach more leverage given the other things that I own.

 

It's still 1.5x leverage.  I'm not exactly wearing the Granny panties here.

 

I was playing in my head the last 2 days with some possibility of writing some AIG 2014 leaps (short put) at the $20 or $22 strike to get some premium income. Hell,... if AIG would drop in a market crash, I would be assigned very cheaply AIG shares. Cash secured equity put. I would compare it with Buffett's short puts on KO in the early 90's, to lower his purchase price. And with the premium income I could finance for free some 2014 AIG leaps (long calls).

 

 

[gokou3]

I bought $10 strike 2014.  I paid a $1 premium which is like borrowing $10 per share at 5% interest rate paid in full upfront and giving up any dividends (looks like all cash is coming back via buybacks).

 

If I remember correctly, in one of the recent articles / interviews, Bensmoche said the company is not allowed to pay dividends until the Treasury has fully exited its stake.  Good for the call option holders.

[MrB]

OK, Let's throw some numbers to the ring to get the conversation started....

 

7. Chartis 70B: used to earn 7-9B  after tax and COR in low 90s. But to be conservative let's use low estimate and multiple.

8. SunAmerica 16B: was earning 2B+, Benmosche thinks it can earn 4B, and over the last year has generated 1.2B just in dividends to the Parent. However, people are worried because of the low rate environment so let's not pay more than AIG paid in 1998 ... 16B.

9. DTA 26B

 

With 70%+ of the value in Chartis & Sun (including related DTA) most of the focus should be here.

 

To paraphrase, let's throw some numbers into the ring to get the CHARTIS conversation started....

Chartis..."7-9B  after tax and COR in low 90s. But to be conservative let's use low estimate and multiple."

Chartis 2011 Rev $40Bn/NPW $35Bn/Statutory surplus $39Bn

 

2011-2001 AIG insurance COR: 109, 116, 108, 116, 92, 91, 105, 100, 92, 105, 100

 

4%-5% historical investment returns.

 

$70Bn seems high???

 

[PlanMaestro]

2011-2001 AIG insurance COR: 109, 116, 108, 116, 92, 91, 105, 100, 92, 105, 100

 

4%-5% historical investment returns.

 

$70Bn seems high???

 

It does. Chartis today maybe should be priced around 0.7-0.8x BV as other P&Cs (that are cheap though). Chartis has 49.4B of BV.

 

The thing is that a COR to reach 15% pre-tax, with low interest rates, has to be in the low 90s. Something has to give, and over time will be insurance prices. I concede  that it will be a positive for the whole industry though. Benmosche is guiding only 10% pre-tax over time that looks too low.

 

Also after reviewing SunAmerica, that is throwing around $2-3B just in dividends to the parent (w/o ML II), 35.5B BV (w/ML II, 34.3B w/o MLII), not paying taxes, and growing ... 16B seems too low.

[bmichaud]

I've been mulling this one over since I believe February when I first joined this discussion, and I finally capitulated today establishing a pretty sizable position. The final straw for me was the DB report - not in and of itself - but the fact that it being published shows that interest is beginning to swirl around the name. Sounds stupid I know, but I really don't think this thing is going to stay down here for long once big institutions become interested. Most likely I'm wrong...but I love the margin of safety and the buyback catalyst.

 

Thanks to everyone on this thread for providing so many links and commentary on the story!

[Uccmal]

What exactly is the bear case on AIG? The consensus on the board seems to be that AIG is very cheap, and I have no disagreement with that claim. In fact I have been buying AIG stock recently. But why is the stock trading at such a depressed price? I can think of some reasons, but none of them is very

 

So where does all the pessimism come from?

 

I would think its mostly overhang at this point.  These guys were literally the most reviled business in

the US as recently as  1.5 years ago.  As the impovements and buybacks from gov't work through, the price will start to reflect it. 

 

Newish position in 2014 leaps: 30' 35' and 45s. 

 

 

 

[Uccmal]

Plan, I will buy you lunch when I visit Mexico City one day, assumming this works out.  Maybe supper too  ;)

[ECCO]

What exactly is the bear case on AIG? The consensus on the board seems to be that AIG is very cheap, and I have no disagreement with that claim. In fact I have been buying AIG stock recently. But why is the stock trading at such a depressed price? I can think of some reasons, but none of them is very

 

So where does all the pessimism come from?

 

 

One of the reason might be that AIG is not part of an index, meaning no index fund's buying. Am I right in saying that? I find that to be part of some S/P index a stock must have 50% + of its stock  public float. Is AIG part of other index?

 

That might mean that once the gov. sell another 20%, there will be more buyer for the stock.

[PlanMaestro]

Plan, I will buy you lunch when I visit Mexico City one day, assumming this works out.  Maybe supper too  ;)

 

Tacos and beer are on the house for whomever decides to come to  Mexico City. The Mexican beaches are too big a competition so I am throwing a little incentive for you guys and gals.

[bmichaud]

I'm not sure about the indices, sounds about right - but it just seems there is flat out zero interest in the name. Tainted name, no yield, no growth, government ownership and no "street" endorsement = zero interest. Big investors will be able to more easily explain to clients why they hold the symbol of the financial crisis once it reaches book value, is earning a clean $6 per share, paying a 5% dividend, and the government is no longer an owner. Makes no sense but I'll take it.

[rranjan]

What exactly is the bear case on AIG? The consensus on the board seems to be that AIG is very cheap, and I have no disagreement with that claim. In fact I have been buying AIG stock recently. But why is the stock trading at such a depressed price? I can think of some reasons, but none of them is very

 

So where does all the pessimism come from?

 

 

One of the reason might be that AIG is not part of an index, meaning no index fund's buying. Am I right in saying that? I find that to be part of some S/P index a stock must have 50% + of its stock  public float. Is AIG part of other index?

 

That might mean that once the gov. sell another 20%, there will be more buyer for the stock.

 

You are right about AIG not being part of S&P index. I am not sure, how much of catalyst it would be in future but it will be on positive side. Anyway, it does not matter. If thesis plays out as expected then index will be a non-issue. I just hope that shares remains at this level to allow for a sizable buybacks.

[mankap]

Hi

 

It is good to see that Chartis is focusing on growth opportunities .This could be huge opportunity for Chartis and AIG which is not being priced in.

 

http://www.businessweek.com/news/2012-03-29/aig-targets-china-drivers-in-50-billion-insurance-market

[MrB]

Also after reviewing SunAmerica, that is throwing around $2-3B just in dividends to the parent (w/o ML II), 35.5B BV (w/ML II, 34.3B w/o MLII), not paying taxes, and growing ... 16B seems too low.

Sorry, I lost you there. 16B?

 

Also, I think you referred to the 4 Oct 2010 document early in this thread, which was mentioned in the TARP hearings and we were trying to find it. I stumbled across it in the meantime, but forget to mention it. (1st link below)

 

Specific to this discussion, see pages 4 (also see footnote 2), 18 and more importantly page 19.

 

Slightly off topic:

Generally this report is concerning, because it highlights the issues around guarantees.

Pages 40&41 shows the tenure of the senior executives, which supports Benmosche's and Hancock's point, which is that they have a deep bench. Now if the culture is rotten then you are simply entrenching the bad which could be the case if you read David Merkel's piece (2nd link below). However, I generally like it when a firm has long average tenures, which seems to be the case here.

 

By the way. Anyone knows of a board where AIG employees post? There has to be one??

 

 

 

 

 

http://www.portal.state.pa.us/portal/server.pt/document/1029478/natl_union_fire_limited_scope_2010_pdf

 

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCQQFjAA&url=http%3A%2F%2Falephblog.com%2Fwp-content%2Fuploads%2F2009%2F04%2FTo%2520What%2520Degree%2520Were%2520AIG%25E2%2580%2599s%2520Operating%2520Subsidiaries%2520Sound.pdf&ei=SXl1T4eHGYWD8gObq9mcDQ&usg=AFQjCNEkeLo8yi7jG3AoMieYb16GC6ZShw

[MrB]

 

Sorry, I lost you there. 16B?

 

 

Ok, got it.

The rule is; have coffee first, then read!

[vinod1]

 

 

By the way. Anyone knows of a board where AIG employees post? There has to be one??

 

 

 

Here is one

 

http://www.glassdoor.com/Reviews/AIG-Reviews-E40.htm

 

Vinod

[theando]

http://dl.dropbox.com/u/32606407/Insrpt.pdf

 

Report on pricing. I am going to start looking into this more. If they can raise  pricing and one day maybe get some  investment income then normalized earnings are going to be healthy.

[MrB]

Hi

 

It is good to see that Chartis is focusing on growth opportunities .This could be huge opportunity for Chartis and AIG which is not being priced in.

 

http://www.businessweek.com/news/2012-03-29/aig-targets-china-drivers-in-50-billion-insurance-market

 

Especially considering Chartis combined ratio on foreign business;

2010-2004 ; 104,100,93,86,83, 86, 91

 

Report mentioned in your article

http://www.pwchk.com/home/webmedia/634586964832500598/foreign_insurance_cn_dec2011.pdf

[MrB]

 

 

By the way. Anyone knows of a board where AIG employees post? There has to be one??

 

 

 

Here is one

 

http://www.glassdoor.com/Reviews/AIG-Reviews-E40.htm

 

Vinod

Terrific, tnx.

[MrB]

Maiden Lane

Value based on this link, which has all the info you need including Qs and Annuals. http://www.newyorkfed.org/markets/maidenlane.html#periodicreleases2

 

Maiden Lane ll

Fixed deferred purchase price 1.332

1/6 payment   0.370

Sub total 1.702

Maiden Lane lll

Equity 5.000

Interest 0.541

1/3 payment 0.808

Sub total 6.349

Total 8.051

 

 

[berkshiremystery]

Maiden Lane

Value based on this link, which has all the info you need including Qs and Annuals. http://www.newyorkfed.org/markets/maidenlane.html#periodicreleases2

 

Maiden Lane ll

Fixed deferred purchase price 1.332

1/6 payment   0.370

Sub total 1.702

Maiden Lane lll

Equity 5.000

Interest 0.541

1/3 payment 0.808

Sub total 6.349

Total 8.051

 

Thanks for sharing

[mankap]

Here is what 10k says about proceeds from ML-2.It says that proceeds from ML-2 will be required to pay AIA preferred.But according to press release from 3/22 ,AIA preferred have been paid in full from the proceeds from AIA stock sale.Does it mean that AIG has still to receive ML-2 proceeds and can use it way it likes.

 

AIG therefore, expects to begin receiving repayment of its $1 billion initial investment in ML

II, plus accrued interest, commencing in 2012. Any proceeds in excess of AIG’s principal and interest will be

allocated five-sixths to the FRBNY and one-sixth to AIG. Under the terms of the Master Transaction Agreement

dated December 8, 2010, among AIG Parent, AM Holdings LLC (formerly known as ALICO Holdings LLC),

AIA Aurora LLC, the FRBNY, the Department of the Treasury, and the Trust, all payments received by AIG

from ML II will be required to be used to pay down the liquidation preference of the AIA SPV Preferred

Interests.

[MrB]

Here is what 10k says about proceeds from ML-2.It says that proceeds from ML-2 will be required to pay AIA preferred.But according to press release from 3/22 ,AIA preferred have been paid in full from the proceeds from AIA stock sale.Does it mean that AIG has still to receive ML-2 proceeds and can use it way it likes.

 

AIG therefore, expects to begin receiving repayment of its $1 billion initial investment in ML

II, plus accrued interest, commencing in 2012. Any proceeds in excess of AIG’s principal and interest will be

allocated five-sixths to the FRBNY and one-sixth to AIG. Under the terms of the Master Transaction Agreement

dated December 8, 2010, among AIG Parent, AM Holdings LLC (formerly known as ALICO Holdings LLC),

AIA Aurora LLC, the FRBNY, the Department of the Treasury, and the Trust, all payments received by AIG

from ML II will be required to be used to pay down the liquidation preference of the AIA SPV Preferred

Interests.

 

I found it helpful to read the following IN THE FOLLOWING ORDER,

the section in the 10k you mentioned, and then

the ML 2 AR http://www.newyorkfed.org/aboutthefed/annual/annual10/MLII_31811.pdf , and then

the press release on the Fed Maiden lane site related to the full payment of ML 2.

[PlanMaestro]

Anyone with an FT subscription that can summarize this article? Mine expired. A shame, considering the FT is the best paper in the world.

 

AIG exploring ways back into mortgage market

http://link.ft.com/r/VKY5JJ/WTK7UL/YHFZN/L9L6JI/ZGE8V5/6C/h?a1=2012&a2=4&a3=1

 

[zippy1]

Anyone with an FT subscription that can summarize this article? Mine expired. A shame, considering the FT is the best paper in the world.

 

AIG exploring ways back into mortgage market

http://link.ft.com/r/VKY5JJ/WTK7UL/YHFZN/L9L6JI/ZGE8V5/6C/h?a1=2012&a2=4&a3=1

 

Is this real or is this one of those April fool's day thing?

[mankap]

Here is what I found.ML-2 proceeds were paid to AIG on March 15.I think the amount is around 1.2B.

On March 22 AIG had a press release saying that they paid for the AIA preferred.I think they used the ML 2 proceeds to buy AIA preferred.Let us see when they can get proceeds from ML3.

 

On March 15, the remaining portion of the

fixed deferred purchase price plus interest owed to

the AIG subsidiaries was repaid in full.

 

 

http://www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201203.pdf