Filed Under:Your Practice, Regulatory

AIG has been federally regulated since September

Action triggered by IPO coupled with thrift ownership

AP Images/Mark Lennihan)
AP Images/Mark Lennihan)

American International Group (AIG) has been regulated on a consolidated basis by the New York Federal Reserve Board (NYFRB) since September of 2012.

Two separate agency sources confirmed the change of status, apparently triggered by an initial public offering of AIG stock by the Treasury Department in August that reduced the Treasury holding of AIG stock to 15.9 percent.

AIG is being regulated by the Fed because it operates a small thrift in Wilton, Conn. The thrift was formerly regulated by the Office of Thrift Supervision (OTS). But, the OTS was phased out and its authority to charter thrifts and become the consolidated federal regulator of non-banks which operate thrifts was shifted under the Dodd-Frank financial services reform law. Under the law, the Office of the Comptroller of the Currency charters thrifts and the Fed is the consolidated federal regulator of non-banks which operate thrifts.

The change was made because AIG’s financial problems was blamed on the OTS as the consolidated federal regulator.

An AIG spokesman did not respond to requests for comment on the new oversight.

At the same time, Paul Newsome, a managing director of Sandler O’Neill in Chicago, called today’s sale of the Treasury’s remaining holdings a “milestone.”

He said it represents “the last of the U.S. government's direct ownership of AIG common stock and eliminates the overhang of future large common share offerings.”

Newsome said that in the last 19 months, the Treasury has held six offerings of AIG common shares and sold 1.66 billion shares at an average price of $31.18 per share.

Newsome added that Sandler O’Neill expects the short-term impact to be similar to other large public offerings and have a short-term negative impact on the shares, “but over the long-term, we anticipate that this will free-up AIG to focus on improving its business and not the public ownership of the company.”

John Nadel of Sterne Agee & Leach said he believes the announcement of estimated losses from Sandy was the critical factor in getting Treasury out of the stock and he was not surprised by the timing.

Also as expected, Nadel said that AIG did not buy back any shares, consistent with management comments last quarter.

“With the Treasury fully out, we expect management can now devote 100 percent of its attention to driving returns and improved financial performance,” Nadel said.

Along these lines, “we hope to see one or more of the following in the near future: 1) initiation of a common dividend; 2) details surrounding timing and size of expense initiatives; and 3) a change to management incentive programs to further align incentives with shareholders,” Nadel said.

Nadel also said on a conference call with analysts Monday night, David Herzog, executive vice president and chief financial officer of AIG said that the full proceeds from the sale of its leasing operations, ranging from $4.2 billion to $4.8 billion, depending on whether the new owners buy 80.1 percent of the company or if they exercise an option to buy the full 90 percent, will be fully available for AIG to use as capital. However, Nadel said that Herzog did not commit AIG to using the proceeds from the sale of the leasing unit for share repurchases.

 

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