BargainValueHunter Posted March 8, 2012 Share Posted March 8, 2012 Some of the press on this makes me sick. The Street.com is one thing, but for Fortune to publish such garbage it is sad. How can this recent series of events be seen as negative? http://www.thestreet.com/_yahoo/story/11447752/1/aig-share-sale-a-drop-in-the-bailout-bucket.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA http://finance.fortune.cnn.com/2012/03/07/treasury-aig-42-billion/?source=yahoo_quote Is Buffett asleep at the wheel here or what? You have his beloved Ajit Jain having high regard for Hancock who is in charge of Chartis the largest operation, you have an elephant in the insurance world waiting to be bought at a 47% discount to its tangible book value and you could please Mr. Obama by pretty much exiting the U.S. bailout program completely by buying a large chunk of AIG which the Treasury would then have no problem selling the rest to followers at higher prices! Cardboard Maybe the Oracle has already thrown AIG on his "too hard" pile. Link to comment Share on other sites More sharing options...
bmichaud Posted March 8, 2012 Share Posted March 8, 2012 Some of the press on this makes me sick. The Street.com is one thing, but for Fortune to publish such garbage it is sad. How can this recent series of events be seen as negative? http://www.thestreet.com/_yahoo/story/11447752/1/aig-share-sale-a-drop-in-the-bailout-bucket.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA http://finance.fortune.cnn.com/2012/03/07/treasury-aig-42-billion/?source=yahoo_quote Is Buffett asleep at the wheel here or what? You have his beloved Ajit Jain having high regard for Hancock who is in charge of Chartis the largest operation, you have an elephant in the insurance world waiting to be bought at a 47% discount to its tangible book value and you could please Mr. Obama by pretty much exiting the U.S. bailout program completely by buying a large chunk of AIG which the Treasury would then have no problem selling the rest to followers at higher prices! Cardboard Maybe the Oracle has already thrown AIG on his "too hard" pile. This is the only possible explanation, right? Though I would think he would be far more interested now with the CDS portfolio cleaned up, so maybe it is just a matter of time.... Link to comment Share on other sites More sharing options...
PlanMaestro Posted March 8, 2012 Author Share Posted March 8, 2012 This is the only possible explanation, right? Though I would think he would be far more interested now with the CDS portfolio cleaned up, so maybe it is just a matter of time.... There are many possible explanations, these are some: 1. Maybe AIG is too big an elephant ($40-$50B? that looks big even for Berkshire) 2. Maybe he does not want more concentration on insurance with Berkshire too close to becoming the industry (AIG is the largest P&C company in the US) 3. Maybe he is trying to leave a conglomerate with businesses that do not depend too much on the people in charge (dumb moves cost more in financials) 4. Maybe he has cheaper or better quality opportunities (for example in his PA he has banks) 5. Maybe it is just a crappy company or it is only superficially cheap and there is a visible problem. (the most visible was asbestos and it was reinsured by Buffett. The second most visible is workers comp but seems to be on the fix) 6. Maybe his offers to save financials could be interpreted as too cozy, especially coming from a friendly government, and become a political or reputational liability 7. Maybe he thinks AIG is a black box. From my point of view, considering all the information available about AIG, the black box is one of the least probable. But I am happy that there is no obvious buyer so AIG keeps buying back the Treasury at these cheap prices. Link to comment Share on other sites More sharing options...
CONeal Posted March 8, 2012 Share Posted March 8, 2012 He has all the time in the world if he wants to buy a stake. If he wanted to take a 30% position all he would need to do is wait till the gov't had almost 30% left and then could probably get it at a discount, since its such a large stake (and clears the gov't out). Everyone that follows his moves would bring the shareprice higher since the gov't selling would have ended with him. It might sound crazy but if I was in his position, that's how I would take the stake. Think AIG is a little to big for even him to take whole. Personally I think there are some regulatory issue b/c he would have the insurance industry cornered if he was the majority owner. Also, if he took a stake now he owns a gov't controlled company. Link to comment Share on other sites More sharing options...
Uccmal Posted March 8, 2012 Share Posted March 8, 2012 I am of the thinking that it is a regulatory issue for Berkshire. He would likely have to carve off pieces of his other firms and parts of AIG after the fact. Its a pretty heavily regulated business from the perspective of risk sharing and risk management. When he bought Gen Re he was getting a re business where he didn't really have one. Now he operates across the breadth of the p&c business. There would be alot of duplication with Chartis. Link to comment Share on other sites More sharing options...
bmichaud Posted March 8, 2012 Share Posted March 8, 2012 This is the only possible explanation, right? Though I would think he would be far more interested now with the CDS portfolio cleaned up, so maybe it is just a matter of time.... There are many possible explanations, these are some: 1. Maybe AIG is too big an elephant ($40-$50B? that looks big even for Berkshire)2. Maybe he does not want more concentration on insurance with Berkshire too close to becoming the industry (AIG is the largest P&C company in the US) 3. Maybe he is trying to leave a conglomerate with businesses that do not depend too much on the people in charge (dumb moves cost more in financials) 4. Maybe he has cheaper or better quality opportunities (for example in his PA he has banks) 5. Maybe it is just a crappy company or it is only superficially cheap and there is a visible problem. (the most visible was asbestos and it was reinsured by Buffett. The second most visible is workers comp but seems to be on the fix)6. Maybe his offers to save financials could be interpreted as too cozy, especially coming from a friendly government, and become a political or reputational liability 7. Maybe he thinks AIG is a black box. From my point of view, considering all the information available about AIG, the black box is one of the least probable. But I am happy that there is no obvious buyer so AIG keeps buying back the Treasury at these cheap prices. 1 and 5 are really good points (not that the others aren't, I just liked 1 and 5 the best). Regarding point #1, I just would think that Buffett would find some way to make it work in order to have access to AIG's $366 billion investment portfolio. And somewhat related, regarding #5, he bought Gen Re when it was performing terribly in order to get access to the investment portfolio, AND Chartis's Peter Hancock seems like the perfect Buffett guy to turn around any imperfections Buffett may see in the company. Maybe throw Ajit into the mix.... Link to comment Share on other sites More sharing options...
prevalou Posted March 8, 2012 Share Posted March 8, 2012 http://dealbook.nytimes.com/2012/03/07/treasury-to-sell-6-billion-worth-of-a-i-g-shares/?partner=yahoofinance The article says government stake in AIG will be 70%after the sale (today 77%). How is it possible if the government sells 6 B$ common shares ? Link to comment Share on other sites More sharing options...
racemize Posted March 8, 2012 Share Posted March 8, 2012 there's also a 5% poison pill issue (though I don't know all the details) and I think he would lose all the tax benefits if he bought it whole. Link to comment Share on other sites More sharing options...
txlaw Posted March 8, 2012 Share Posted March 8, 2012 Is Buffett asleep at the wheel here or what? You have his beloved Ajit Jain having high regard for Hancock who is in charge of Chartis the largest operation, you have an elephant in the insurance world waiting to be bought at a 47% discount to its tangible book value and you could please Mr. Obama by pretty much exiting the U.S. bailout program completely by buying a large chunk of AIG which the Treasury would then have no problem selling the rest to followers at higher prices! Cardboard +1 Please don't wake him up Cardboard so we can continue buying back from the US Treasury at these prices. Link to comment Share on other sites More sharing options...
racemize Posted March 8, 2012 Share Posted March 8, 2012 http://dealbook.nytimes.com/2012/03/07/treasury-to-sell-6-billion-worth-of-a-i-g-shares/?partner=yahoofinance The article says government stake in AIG will be 70%after the sale (today 77%). How is it possible if the government sells 6 B$ common shares ? current market cap is 54 (though the price is lower than it was). 6/54 = 11.5%, so I'd actually think it would be lower than 70%, but again market cap is down quite a bit. Link to comment Share on other sites More sharing options...
PlanMaestro Posted March 8, 2012 Author Share Posted March 8, 2012 there's also a 5% poison pill issue (though I don't know all the details) and I think he would lose all the tax benefits if he bought it whole. I completely forgot the tax benefits and it is a VERY important possible reason. Link to comment Share on other sites More sharing options...
txlaw Posted March 8, 2012 Share Posted March 8, 2012 there's also a 5% poison pill issue (though I don't know all the details) and I think he would lose all the tax benefits if he bought it whole. I had completely forgot the tax benefits and it is a VERY important possible reason. The tax issue/poison pill is likely a big one. CONeal could also be right that WEB might buy the last slug of AIG stock in the government's control. I hope the way this last offering went down becomes the template for the government's divestiture of its stake in AIG. Ideally, AIG will be able to negotiate a private sale of ILFC rather than go forward with an IPO and will once again use the proceeds to buy back shares from the US Treasury at a price well below BV. Link to comment Share on other sites More sharing options...
racemize Posted March 8, 2012 Share Posted March 8, 2012 I hope they keep this model up as well--I'm quite pleased with the buy back rate. On a side note, I was debating with a colleague about whether the 29 dollar break even price will act as a ceiling until the treasury is out. It seems like with a few more good quarters and buy backs, it will become irrelevant. I'm curious what other folks think about it though. Link to comment Share on other sites More sharing options...
merkhet Posted March 9, 2012 Share Posted March 9, 2012 On a side note, I was debating with a colleague about whether the 29 dollar break even price will act as a ceiling until the treasury is out. It seems like with a few more good quarters and buy backs, it will become irrelevant. I'm curious what other folks think about it though. I agree. But you know what, wouldn't it be great for them to keep buying stock at $29? It'd be nice to have Bank of America and AIG work out on different timelines. Then, money from one can be funneled into the other -- depending on who hits intrinsic value first. Link to comment Share on other sites More sharing options...
vinod1 Posted March 9, 2012 Share Posted March 9, 2012 I hope they keep this model up as well--I'm quite pleased with the buy back rate. On a side note, I was debating with a colleague about whether the 29 dollar break even price will act as a ceiling until the treasury is out. It seems like with a few more good quarters and buy backs, it will become irrelevant. I'm curious what other folks think about it though. If 29 serves as a ceiling, over the next 4 years AIG would be generating about $25 billion in FCF and if they are able to get another $15 billion via sale of ILFC and AIA, that would be allow them to retire all of Treasury stock. In the mean time I would think another $5-$10 billion in tax assets come onto the books and book value would be around $90 billion with about 0.6 billion shares or about a book value per share of $150 in just 4 years. This is fantasy of course as I do not think that AIG would stay below $30 that long. Vinod Link to comment Share on other sites More sharing options...
Cardboard Posted March 9, 2012 Share Posted March 9, 2012 I did not have in mind for Warren to buy the entire stake from Treasury. I was thinking about a $10 billion investment or similar to the IBM purchase. That would give him at current price just under 20% of the company or not enough to raise regulatory issues since it would be non-control or simply for investment purposes. One issue as mentioned is the 5% ownership threshold to retain the NOL's at AIG. Based on a few examples that I have seen, it seems that there are ways to work around it. Just looking at the Treasury, it did not trigger a loss of AIG NOL's when they effectively took control. But yep, if they continue buying back shares at that pace and at that price, this thing will look very pretty in 3 or 4 years. That is 5.4% fewer shares in one day at half of tangible book! If you read Buffett's piece about IBM in his latest annual letter, you will find AIG to be almost the perfect model for what he is talking about regarding buybacks. However, I can't see it lasting so long. Cardboard Link to comment Share on other sites More sharing options...
alertmeipp Posted March 16, 2012 Share Posted March 16, 2012 Am surprised by the 29$ curse. Hope they buyback more from the market. Link to comment Share on other sites More sharing options...
Cardboard Posted March 16, 2012 Share Posted March 16, 2012 Well, for that you would need to make understand Ms. Elizabeth Warren that when you remove AIG's tax assets, that for every $0.30 that you make in incremental taxes that you lose about $3 in AIG stock price and when you own 70%, that is $2.10 that you lose for that extra $0.30. The U.S. Treasury or government could make a lot of money by simply holding these shares just 5 more years. That is all they have to do. On the other hand, I am sure that Ms. Warren idea has some merit based on re-election or some ideological concept. Cardboard Link to comment Share on other sites More sharing options...
alertmeipp Posted March 16, 2012 Share Posted March 16, 2012 call the gov just take it back? It's part of the package, right? Link to comment Share on other sites More sharing options...
merkhet Posted March 16, 2012 Share Posted March 16, 2012 Yea. The thing is that I generally like Elizabeth Warren, but I think she's 100% wrong on this issue. Hoping it's not just bias that informs me on this one, but I think that it's terrible policy... Link to comment Share on other sites More sharing options...
MrB Posted March 16, 2012 Share Posted March 16, 2012 http://www.atimes.com/atimes/China_Business/JI18Cb02.html Some history on AIG/Greenberg Link to comment Share on other sites More sharing options...
nkp007 Posted March 19, 2012 Share Posted March 19, 2012 After following the BOA thread, I though I would re read this thread + look at company presentations, to better understand and learn how some of the smarter guys here think. I am also intrigued that someone like BB would have 23% of his assets invested. Is there anyway to simplify this idea so even someone with a 12 year old mentality (like myself) can understand it. Here is my version: From my reading over the last 30 minutes: AIG used to be one of the great U.S. corporations, led by a good jockey (H Greenberg), showed growth consistently and as a result sold at a premium to book value. Got into trouble after new management came in---they did not know what they were doing, allowed unknowingly some cowboys to bet the house on high risk stuff (credit default swaps, CDO's etc) which led to... Had to be bailed out by U.S government. New manager who seems to be doing a good job (according to what I read, i would have no idea otherwise) Guys who did not know what they were doing are out. I assume all those people who worked at the various subsideries that built a great business are still there. All there high risk stuff has been unwound. They are currently operating in a soft insurance market, so they are not turning a profit +/or they are booking large reserves just so that they don t have another financial catastrophe in the future. Insurance market is not going to be soft forever. When they do have a profit they have $25 billion in tax credits or past NOL's so they wont have to pay taxes for a while. Bottom line -we re looking at a very large company with a past history of good operation, that is being highly scrutinized by regulators, trading at 50% of BV when they should be selling at least at BV Why is it selling this low: -because the government has to sell a huge amount of common, so there is no urgency to buy, as they know it will be low for a while -the consensus does not trust the company -the consensus does not realize that all the risky stuff has been taken out by government (I am assuming this) -I think so many people were burned by AIG, that they are not even looking at this i.e how would it look if they were burned twice -financial companies are out of favor (good place to look). Seems to be a dollar bill for 50 cents? Appreciate any feedback. Disclosure:I have no money in AIG. as it is not something I would be into or know about but looking to expand my circle(dot) of competence. You definitely don't have a 12 year old mentality. Great point by point. Link to comment Share on other sites More sharing options...
biaggio Posted March 19, 2012 Share Posted March 19, 2012 nkp007 thanks, trust me you re being generous. Link to comment Share on other sites More sharing options...
treasurehunt Posted March 20, 2012 Share Posted March 20, 2012 nkp007 thanks, trust me you re being generous. At the very least, you are one hell of a precocious twelve year old! :-) I have been going through AIG's SEC filings and conference calls to see if I can get comfortable enough with the company to buy some stock. But it also helps to get a big picture view such as the one you posted. Link to comment Share on other sites More sharing options...
watsa_is_a_randian_hero Posted March 20, 2012 Share Posted March 20, 2012 AIG used to be one of the great U.S. corporations, led by a good jockey (H Greenberg), showed growth consistently and as a result sold at a premium to book value. Got into trouble after new management came in---they did not know what they were doing, allowed unknowingly some cowboys to bet the house on high risk stuff (credit default swaps, CDO's etc) which led to... You definitely don't have a 12 year old mentality. Great point by point. People always seem to forget new management came in for a reason...AIG got into trouble before CDO's (finite re). There was a culture there of stretching risks to boost EPS a few pennies. The seeds of AIG's demise were sewn under Greenberg. He has tried to maintain innocence and create the perception that new management ruined what he so carefully built...but I just don't buy this. Link to comment Share on other sites More sharing options...
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