AIG - American International Group

[Uccmal]

Hitting 100+ weeks high, warrant is as high as it has ever been. No big news that I can see, except some speculation that a dividend is coming.

 

http://www.bloomberg.com/news/2013-04-24/aig-extends-rally-on-dividend-speculation.html

 

I hope they won't, and will instead keep buying expensive debt and resume big buybacks.

 

I doubt they will.  Isn't Benmoche waiting on some type of decision around SIFI?

 

I think a good chunk of the move up had to do with Travellers reporting good earnings late last week.  Pure speculation of course. 

[mankap]

I think to realize better value for shareholders, AIG should split itself into 3 companies i.e. P&C,Life and Mortgage insurance.

The way life and P&C companies are valued are different for each other.

Risk profile of life and P&C is also different from each other.

 

I wanted to get the views of the board on this.

[Guest wellmont]

I think to realize better value for shareholders, AIG should split itself into 3 companies i.e. P&C,Life and Mortgage insurance.

The way life and P&C companies are valued are different for each other.

Risk profile of life and P&C is also different from each other.

 

I wanted to get the views of the board on this.

 

I floated this idea months ago. I think that's the end game.

[ourkid8]

What would happen to the warrants if they were to break up the company?

 

Tks,

S

 

I think to realize better value for shareholders, AIG should split itself into 3 companies i.e. P&C,Life and Mortgage insurance.

The way life and P&C companies are valued are different for each other.

Risk profile of life and P&C is also different from each other.

 

I wanted to get the views of the board on this.

[Uccmal]

I think to realize better value for shareholders, AIG should split itself into 3 companies i.e. P&C,Life and Mortgage insurance.

The way life and P&C companies are valued are different for each other.

Risk profile of life and P&C is also different from each other.

 

I wanted to get the views of the board on this.

 

I floated this idea months ago. I think that's the end game.

 

It might well be.  They have certainly been branding in that direction. 

 

As to the warrants... If AIG floats Sun America and UG they get the cash.. right.  Shouldn't make any difference. 

[Liberty]

As to the warrants... If AIG floats Sun America and UG they get the cash.. right.  Shouldn't make any difference.

 

I know you didn't mean it literally, but if it happens, it could make a difference, and hopefully a positive one if they are smart with what they do with the cash (what counts as smart will depend on their opportunities at the time.. very different if they still trade at 0.6x book than if they are at 1.2x or whatever).

 

Question for those who have read the warrant prospectus with a fine tooth comb: Would a big one-time special dividend count in the dividend-adjustment mechanism?

[no_free_lunch]

Haven't read every single word of the document but that section seemed pretty tight on any type of dividend triggering anti-dilution adjustments.

[no_free_lunch]

Well this is from the prospectus, use your own judgement. 

 

If AIG makes a cash distribution to all holders of Common Stock, excluding (a) any cash dividend on Common Stock to the extent that the aggregate cash dividend per share of Common Stock does not exceed $0.675 per share of Common Stock in the aggregate in any twelve-month period (the “Dividend Threshold Amount”) , (b) any cash that is distributed as part of a distribution referred to in paragraph (3) above, and © any consideration payable in connection with a tender offer referred to in paragraph (5) below, then the exercise price will be adjusted based on the following formula:

 

SR1 = SR0 x (SP0 − C) / SP0

 

where,

 

 

SR0

  =   the exercise price in effect at the close of business on the record date

SR1

  =   the exercise price in effect immediately after the record date

SP0

  =   the Current Market Price as of the record date

C

  =   the excess of the amount in cash per share of Common Stock that AIG distributes to holders over the Dividend Threshold Amount

 

The Dividend Threshold Amount is subject to adjustment on a proportional basis whenever the exercise price is adjusted, provided that no adjustment will be made to the Dividend Threshold Amount for any adjustment made to the exercise price pursuant to this paragraph (4).

 

http://www.sec.gov/Archives/edgar/data/5272/000095012311003847/y89089e424b2.htm

[muscleman]

Don't forget that AIG is dual-listed in Japan.

Japan has very low interest rate so any dividend stock will fly up in the sky.

AIG can earn $4-6 a year, and if it issues a $2 dividend, the stock price will probably go up to $100.

[Liberty]

Don't forget that AIG is dual-listed in Japan.

Japan has very low interest rate so any dividend stock will fly up in the sky.

AIG can earn $4-6 a year, and if it issues a $2 dividend, the stock price will probably go up to $100.

 

It's the first time I hear this thesis. Interesting. Do you have examples of other dual-listed companies that implemented a dividend and saw this "Japan effect"?

[Guest wellmont]

As to the warrants... If AIG floats Sun America and UG they get the cash.. right.  Shouldn't make any difference.

 

I know you didn't mean it literally, but if it happens, it could make a difference, and hopefully a positive one if they are smart with what they do with the cash (what counts as smart will depend on their opportunities at the time.. very different if they still trade at 0.6x book than if they are at 1.2x or whatever).

 

Question for those who have read the warrant prospectus with a fine tooth comb: Would a big one-time special dividend count in the dividend-adjustment mechanism?

 

i don't think a special dividend is in the cards with the stock trading under book. more shareholder value will be created with a buyback. nor would a special dividend help if the stock were trading over book. at that point it would make sense to grow the balance sheet. I do expect a nominal dividend that increases pretty rapidly to a 40% payout.

[Liberty]

i don't think a special dividend is in the cards with the stock trading under book. more shareholder value will be created with a buyback. nor would a special dividend help if the stock were trading over book. at that point it would make sense to grow the balance sheet. I do expect a nominal dividend that increases pretty rapidly to a 40% payout.

 

The scenario I was imagining was a few years down the road, if they split up the company and end up with, say, 20+ billion from the sale of the non P&C divisions... What are they supposed to do with this much money? Certainly not efficient to keep it on the balance sheet earning little. Buybacks would be great under book, but if by then AIG trades significantly above book, that might not make sense (though as Eric has shown, buybacks even above book can be more efficient than dividends). Some P&C acquisitions might make sense, but that's always dangerous. Increasing the regular dividend could also work, but since this would be a one-time source of cash, once they've burned through they might have to reduce the dividend, which management usually doesn't like to do... So a big special dividend might be what makes most sense, which is why I'm wondering how it would impact the warrants.

 

But then again, if AIG is trading much above book, I might not be a shareholder anymore (that would depend on ROE and whether there's still a margin of safety), so it might not be my problem.

 

Maybe I'm wrong to assume that a split of the company's divisions isn't probable before a few years have passed. I was thinking that they would at least wait to fix the ROE before considering it, but maybe it would make sense to do it before that; they'd get less for the other divisions, but to compensate, they could use that cash to buy back shares in the remaining P&C division below book, so the ultimate per share benefit might be the same as waiting longer for a better price and then buying back dearer stock. Hmm.

 

What about the scenario where they spin off the other divisions and current shareholders get shares in the spun off entities. How would that work for warrant holders? I think it might have been mentioned earlier in this thread, but memory's fuzzy on what was said and I can't seem to find that discussion using the search feature.

[stahleyp]

Props to nwoodman who posted this on the Berkshire specific forum. Thought it would be useful over here, too.

 

 

http://www.businessinsurance.com/article/20130425/NEWS04/130429867?tags

[no_free_lunch]

What about the scenario where they spin off the other divisions and current shareholders get shares in the spun off entities. How would that work for warrant holders? I think it might have been mentioned earlier in this thread, but memory's fuzzy on what was said and I can't seem to find that discussion using the search feature.

 

Basically, my interpreation is that the warrants will adjust down based on the dollar amount of stock that is spun off.  The warrants remain on the parent company.

 

However, if the transaction that gives rise to an adjustment pursuant to this paragraph (3) is one pursuant to which the payment of a dividend or other distribution on the Common Stock consists of shares of capital stock of, or similar equity interests in, a subsidiary or other business unit (i.e., a spin-off) that are, or, when issued, will be, traded on a U.S. securities exchange, then the exercise price will instead be adjusted based on the following formula:

 

EP1 = EP0 x MP0 / (FMV0 + MP0)

 

where,

 

 

EP0

  =   the exercise price in effect at the close of business on the record date

EP1

  =   the exercise price in effect immediately after the record date

FMV0

  =   the average of the VWAP (as defined below) of the capital stock or similar equity interests distributed to holders of Common Stock applicable to one share of Common Stock over each of the 10 consecutive trading days commencing on and including the third trading day after the date on which “ex-distribution trading” commences for such dividend or distribution with respect to Common Stock on the NYSE or such other national or regional exchange or market that is at that time the principal market for the Common Stock

MP0

  =   the average of the VWAP per share of the Common Stock over each of the 10 consecutive trading days commencing on and including the third trading day after the date on which “ex-distribution trading” commences for such dividend or distribution with respect to Common Stock on the NYSE or such other national or regional exchange or market that is at that time the principal market for the Common Stock

[muscleman]

Don't forget that AIG is dual-listed in Japan.

Japan has very low interest rate so any dividend stock will fly up in the sky.

AIG can earn $4-6 a year, and if it issues a $2 dividend, the stock price will probably go up to $100.

 

It's the first time I hear this thesis. Interesting. Do you have examples of other dual-listed companies that implemented a dividend and saw this "Japan effect"?

 

I don't know. Sorry.

I just checked a few Japanese banks. They all trade at less than 2% dividend yield.

 

[fareastwarriors]

AIG Promotes Two After Defections to Berkshire .

 

 

American International Group Inc. AIG +0.51%has promoted two executives to fill the shoes of some of the top managers who departed to set up a new insurance operation at Warren Buffett's Berkshire Hathaway Inc. BRKB -0.30%

Robert Schimek, head of AIG's property-casualty operations for Europe, the Middle East and Africa, will become president and chief executive for the unit's operations in the Americas, AIG said in a statement Monday. In his new position, he takes on the responsibilities of departed executive Peter Eastwood, the most senior executive to move to Berkshire last week.

 

Alexander Baugh, most recently chief risk officer and head of strategy for AIG's property-casualty operations, will assume responsibility for AIG's global casualty business, AIG said. He succeeds David Fields, another of the defectors.

 

 

 

http://online.wsj.com/article/SB10001424127887323798104578452734213168130.html?mod=WSJ_business_whatsNews

[mbharadwaj]

Results are out:

 

http://finance.yahoo.com/news/aig-reports-first-quarter-2013-200000517.html

[Hielko]

97.3 combined ratio for P&C division vs 102.1 last year looks pretty good

[mankap]

With ROE approaching 10% and COR less than 100 , there is no reason for AIG to trade at less than book value which is $60 now.

Once AIG starts the dividend , it will trade at 60.

[Liberty]

During the first quarter of 2013, AIG completed the purchase of warrants issued to the United States Department of the Treasury (U.S. Treasury) in 2008 and 2009.

 

Anyone knows what warrants they are talking about?

[CONeal]

During the first quarter of 2013, AIG completed the purchase of warrants issued to the United States Department of the Treasury (U.S. Treasury) in 2008 and 2009.

 

Anyone knows what warrants they are talking about?

 

There was another class of warrants that the gov't owned.  Around 5 million off the top of my head, that was bought back.  They were different than the ones that everyone else owns.

[pabraifan]

Benmosche latest interview:

 

http://video.cnbc.com/gallery/?video=3000164618&play=1

[fareastwarriors]

http://www.bloomberg.com/news/2013-05-03/aig-ceo-calls-buffett-s-remarks-on-expansion-strange.html

 

AIG CEO Calls Buffett’s Remarks on Expansion Strange

 

 

 

and the interview:

 

http://www.bloomberg.com/video/aig-s-benmosche-says-debt-reduction-is-top-priority-Zx4UjnoMQ0WBLdT_s0cfTg.html

[CorpRaider]

Isn't Benmosche planning to step down in the next year or two?  I really like him and wish he was going to hang out in place for a decade or so.

[Liberty]

Isn't Benmosche planning to step down in the next year or two?  I really like him and wish he was going to hang out in place for a decade or so.

 

I think it'll probably depend on his health. He does seem to enjoy the job a lot.