American International Group’s (AIG) goal is to have sustainable earnings growth equal to the top quarter of insurance companies going forward, president and CEO Robert Benmosche said late Thursday.
He also said that he welcomed oversight of AIG by the Federal Reserve Board as a systemically important financial institution (SIFI), explaining that “…it’s just getting us to be much more disciplined.”
And, given that AIG's deal with Chinese investors to sell its International Lease Finance Corporation didn’t close as scheduled July 31, Benmosche said the company would follow a parallel track on divesting it.
“As we proceed with an IPO through August and into September, my guess would be, if we begin to see the markets are ready for us and we can get a good valuation on the company, we will drop the Chinese offer and then move right to an IPO,” Benmosche said.
Benmosche made his comments on CNBC minutes after AIG reported the seventh consecutive quarter of positive after-tax operating income attributable to AIG, with solid performance across all areas of the company.
An ebullient Benmosche also took a swipe at Elliot Spitzer, who is running for city comptroller.
Spitzer’s action as New York state attorney general in 2005 forced out long-time chairman and CEO Maurice “Hank” Greenberg, as well as his chief financial officer. The probe also required a restatement of earnings by the company and resulted in a huge settlement with the Securities and Exchange Commission (SEC), requiring AIG to pay in excess of $1.6 billion to resolve claims related to improper accounting, bid rigging and practices involving workers’ compensation funds.
“Some of the things [Spitzer] did were right, but he wants to be an activist, which means he may stir the pot for no reason,” Benmosche said. “And I think there’s a serious concern that we have enough people involved right now, regulating us.”
“I’m hoping that he just becomes a good investor, worries about having the companies run the right way and leaves regulation up to regulators,” Benmosche said.
Diluted earnings per share attributable to AIG were $1.84 for the second quarter of 2013, compared with $1.33 for the second quarter of 2012. After-tax operating income per share attributable to AIG was $1.12 for the second quarter of 2013, compared with $0.96 in the second quarter of 2012
He also disclosed that AIG would resume paying a quarterly dividend of 10 cents a share and its board had authorized the repurchase of up to $1 billion of shares of AIG common stock.
In his comments, Benmosche confirmed that AIG had delayed downgrading its thrift to a trust bank for so long because it wanted to remain under regulation of the Fed. That wouldn't have been possible if AIG stopped taking deposits and making loans because the Financial Stability Oversight Council didn’t designate AIG as a SIFI until July 2.
“It’s less than $1 billion. It’s very small,” he said. “It’s been small. It never was of any consequence. We retained it so that, once the Federal Reserve became our regulator in September, we wanted to make sure they stayed as our regulator, because we understood SIFI was coming,” Benmosche said. “And so, keeping the savings bank as it was allowed them to come in and begin to do their work, which means we’re way ahead of the regulatory curve here,” he said.
“We’ve got a lot of insights on what we need to do,” Benmosche said. “Now, the SIFI designation’s been made. They have a basis to be here.”
In response to a question from Maria Bartiromo on whether being a SIFI would change the behavior and strategy of AIG, Benmosche said, “It really doesn’t.”
“It just puts a lot of pressure on us to get it done sooner rather than later. We have to begin to strengthen all of our financial controls of the company,” he said.
“We have to make sure we have very strong stress testing to make sure that we can always live up to our promises. And so, what SIFI does is it says the Federal Reserve is going to come in and give an independent examination at a very granular level to say, ‘Does AIG have the financial strength and is it doing the kind of business that’s appropriate for an insurance company so that they can continue to provide the dividends and buybacks and other things as a company?’” Benmosche said.
As to the dividend, Benmosche said it opens up new shareholders to the company. For example, mutual funds that can only invest in stocks that pay a dividend.
He told host Maria Bartiromo during the break that the dividend issue is important because “you’ve got long-term shareholders in the stock, as opposed to flippers.”
Benmosche said that AIG has seen the rate of ownership by the hedge funds drop about 50 percent over the last several months, “so they’ve been out. Some of them are still in, but not in the size they were before. So, what you’ve seen is a move from funds that tend to be more aggressive traders to people who are more shareholder-oriented, like the big mutual fund companies, who want a stock that shows good fundamentals, steady kind of growth, so that they’re not dealing with a lot of cyclicality in the stock."