As beleaguered insurance behemoth American International Group (
AIG) on Monday posted a third quarter net loss of US$231 million, there were fresh calls to break the company up.
In a TV interview with
Bloomberg Business, Josh Stirling, an analyst with Bernstein, said it is not obvious that AIG deserves to exist in its current form.
“It was built as a conglomerate, it has been run as a conglomerate. The obvious solution for this firm is to 'de-conglomerise' itself and to de-SIFI ( systemically important financial institution) and to actually go one step further than Icahn's proposal and divest a lot of the business,” Stirling said.
Billionaire investors and 'corporate activists' Carl Icahn and John Paulson caused a stir recently, saying that a breakup of “too big to succeed” AIG into three separate companies was long overdue.
Icahn, who took a large stake in AIG last week, seems to have the market's support, as shares started moving up, but Bernstein's Stirling believes there is more value in turning AIG into something about 30% of the size it is today, with some core businesses, and selling off the rest.
“Over the last year the insurance industry has seen the creation of a “really strong” M&A market. You've got a lot of buyers – Japanese insurance companies, Chinese insurance companies, hedge funds – trying to get into the insurance business, reinsurers globally under distress,” Stirling said. “AIG globally is a bundle of assets today and you could sell many of these divisions at serious premiums to book value.”
AIG president and CEO, Peter Hancock, has already knocked Icahn's proposal back, saying he is “simplifying and de-risking the company, and realizing attractive valuations from non-core asset sales”. And more is likely to be revealed Tuesday morning during the company's earnings call.
On Monday, Hancock said the restructuring initiatives will focus on organizational simplification, operational efficiency, and business rationalization, and are expected to generate pre-tax annualized savings of approximately US$400 million to US$500 million when fully implemented.
In the third quarter, the company monetized its stake in AerCap, and in October announced an agreement to sell operations in four Central American countries and further consolidated policy offerings in Japan.
Going forward there will be significant job cuts at senior management level, expected to result in restructuring costs of US$500 million, with further staff reductions anticipated in 2016.
There will also be a US$200 million spend on modernization of information technology platforms.
