Riorganizzazione e non spezzatino per AIG

Hancock will offer a 19.9 percent stake in the mortgage unit United Guaranty Corp. to the public in a step toward a complete exit of that business, AIG said Tuesday in a statement ahead of the CEO’s presentation to Wall Street. The insurer also is reorganizing into “modular” business segments to create flexibility to sell or take public additional units if they underperform. Hancock vowed to return $25 billion to shareholders over the next two years as he reshapes the company after spending more than $9 billion in 2015 on share buybacks.

“AIG has given activist shareholders some red meat, maybe not as much as they wanted,” David Havens, a debt analyst at Imperial Capital, said in a message. “They are navigating a middle ground that preserves most of AIG as it is now, but offers the flexibility to spin off or sell units in the future.”

Hancock’s company climbed 2.6 percent in early trading to $56.80 at 7:25 a.m. in New York. AIG, which offers both life insurance and property-casualty coverage, trades for about 70 percent of book value, while large P&C carriers such as Chubb Ltd. and Travelers Cos. are valued at more than the metric of assets minus liabilities.

Legacy Portfolio

The CEO also announced the creation a “legacy” portfolio of assets that he will sell or wind down. Hancock designated Charlie Shamieh, who oversaw life, health and disability operations, as legacy CEO.

The reserve shortfall highlights weaknesses even at units that Icahn envisions as the core of a scaled-back company. The fourth-quarter pretax cost to fill the gap includes $1.3 billion tied to policies from 2004 and earlier, with the remaining $2.3 billion covering the period of 2005 through 2014. Most of the expenses were tied to casualty coverage, where it can take many years before claims are fully paid. Insurers periodically review whether they have enough money set aside for such expenses, and the cost of strengthening reserves drains earnings.

AIG has been stung repeatedly by higher-than-expected costs from risks that the company assumed in the past, whether from environmental liabilities or workers’ compensation policies. The New York-based company was built into the world’s largest insurer by Maurice “Hank” Greenberg, and each of the five men who held the CEO post since his 2005 departure has grappled with the insurer’s complexity.

‘Decade of Trying’

The company shrank by half as AIG sold assets to repay a 2008 bailout, and Hancock narrowed the focus further after taking over in late 2014. He sold stakes in aircraft lessor AerCap Holdings NV and lender Springleaf Holdings Inc. while parting with businesses in Central America and Taiwan.

“After a decade of trying to fix the firm, given the substantial structural disadvantages unique to AIG, we believe breaking up AIG and selling it off piece by piece to its structurally advantaged peers is simply a more realistic path to creating shareholder value,” Josh Stirling, an analyst with Sanford C. Bernstein & Co., said Monday in a note.

Icahn has said the insurer needs to shrink to escape its status as a systemically important financial institution, which can lead to tighter capital rules from the Federal Reserve. Hancock has said that the costs are not overly burdensome, and that the insurer will continue to be highly regulated even if it’s not a SIFI.

Chairman’s Support

“AIG believes that a full breakup in the near term would detract from, not enhance, shareholder value,” Chairman Doug Steenland said in a statement. “The board’s actions reflect its full support for the plans that Peter Hancock and his management team have put forward.”

Insurer MetLife Inc., one of the other three non-bank SIFIs, said this month that it will separate a domestic retail unit with $240 billion in assets through a sale, spinoff or public offering as CEO Steve Kandarian seeks to limit regulation. General Electric Co. said last week that it is targeting a March exit of too-big-to-fail status after wrapping up deals to sell commercial lending assets and unload a Utah bank charter.

Buying the Bad

The mortgage guarantor contributed $464 million in pretax operating income in the first nine months of last year, or about 12 percent of the total from commercial insurance. The United Guaranty unit is probably worth $3.5 billion or less, according to estimates in the past week from analysts John Nadel of Piper Jaffray Cos. and Meyer Shields of Keefe, Bruyette & Woods. They cited the share plunges this year of publicly traded mortgage insurers like MGIC Investment Corp. and Radian Group Inc. That compares with AIG’s market value of more than $68 billion as of Monday’s close.

“I still don’t see the benefit of spinning part or all of UGC – it’s a profitable business, and the only purpose seems to be to fund the buyback,” Shields said in an e-mail Tuesday. “In other words, selling good businesses to buy more of the remaining bad businesses.”

Icahn’s View

Icahn sent his third letter to AIG last week, telling the board that management could lose credibility if Tuesday’s presentation fails to outline a drastic change. The activist first publicly voiced his separation plan in an October letter to Hancock, and sent another a month later saying he may solicit shareholders and seek a new director, who would agree in advance to take the CEO post if the board asks.

Hancock had also set new financial targets in February. He pledged to boost book value, increase return on equity and cut general operating costs by 3 percent to 5 percent annually through 2017. The CEO has since committed to eliminating hundreds of senior level positions. Still, operating ROE trails rivals at AIG and was 7.1 percent in the nine months through September.

“Amazingly, you have turned the quest for a 10 percent ROE into a half-decade journey,” Icahn said in October.

AIG said Tuesday that it is targeting a consolidated ROE of about 9 percent by next year, with at least 10.3 percent in the operating portfolio that Hancock sees as the core of the business. He also announced expense reductions of $1.6 billion within two years.

“AIG has taken another major step in simplifying our organization to be a leaner, more profitable insurer, while continuing to return capital to shareholders,” he said in the statement. “The creation of more nimble, standalone business units that can grow within AIG or be spun out or sold allows us to do what is in our shareholders’ best interest.”

Advisor Group

The AIG Advisor Group is being purchased by funds affiliated with Donald Marron’s Lightyear Capital and by PSP Investments, a pension fund manager in Canada, Hancock said in a separate statement that didn’t disclose terms.

Hancock previously said that the insurer benefits from its breadth of product offerings and global reach, and that a separation could squander at least a third of AIG’s tax assets, which were valued at about $15 billion in the third quarter of 2015.

The insurer accumulated tax assets in years when it was unprofitable, and they help limit future obligations to the government. Icahn said this month that the loss of tax assets won’t be as severe as Hancock said because they become less valuable over time, and it will take a while to complete transactions.

A separation could also be bad for bondholders, Hancock has said. Moody’s Investors Service has called Icahn’s initial plan “negative” for the company’s debt.

–With assistance from Dan Reichl and Katherine Chiglinsky.