In its first compensation plan for top executives after being freed from the government, AIG (AIG) has announced a bonus clawback plan.
The policy states that AIG can take back bonus pay, incentives, and stock awards if:
1. A material restatement of all or a portion of AIG's financial statements occurs.
2. Incentive Compensation was awarded to, or received by, the Covered Employee based on materially inaccurate financial statements or on performance metrics that are materially inaccurately determined (regardless of whether the Covered Employee was responsible for the inaccuracy).
3. A failure by the Covered Employee to properly identify, assess or sufficiently raise concerns about risk, including in a supervisory role, that results in a material adverse impact on AIG, any of AIG's business units or the broader financial system;
4. An action or omission by the Covered Employee constitutes a material violation of AIG's risk policies as in effect from time to time; or
5. An action or omission by the Covered Employee results in material financial or reputational harm to AIG.
"The outlook revision reflects our belief that JPM has successfully addressed our concerns related to its Chief Investment Office losses, risk-management practices, and governance issues," said Standard & Poor's credit analyst Stuart Plesser. "Specifically, we believe that risk-management missteps were isolated to the CIO unit and that JPM has properly remediated them, or is in the process of doing so. In addition, we believe the synthetic credit portfolio, which gave rise to the CIO losses, has been wound down, for the most part, and additional losses, if any, will be immaterial."
From an investing standpoint, both releases have to be seen as a step in the right direction. Employees should be held responsible for their actions, and this new clawback plan is one way to insure that in the future, harmful acts aren't rewarded with bonuses.
AIG shares currently trade near their 52 week highs at $38.25 per share and are up 8.36% YTD. Analysts currently have a mean price target of $42.28 per share and a median price target of $43.50.
Positives for AIG:
- P/E of 8.7 and P/B of 0.6 are both below the industry averages 16.7 and 0.9, respectively.
- AIG's operating margin of 14.2% is well above the industry average of 9.0%.
- D/E of 0.5 is also substantially below the industry average of 1.0.
- Net cash from operations rebounded in 2012 to $3.6 billion, allowing AIG to repurchase $21 billion of the $80 billion shares issued in the previous four years (common and preferred combined).
JPMorgan shares also trades near its 52 week highs at $47.77, and shares are up 9% YTD. Analysts have a mean price target for JPM of $54.47 and a median target of $54.00.
Positives for JPM
- P/E of 9.4 and D/E of 1.3 are both well below the industry averages of 18.8 and 2.1, respectively.
- Net margin of 20.5 and ROE of 10.7 are both above the industry averages of 13.2 and 6.7, respectively.
- Recently, after receiving government approval, JPM announced a plan to buyback $6 billion in shares and increase its dividend 26.66%. Current dividend yield is 2.4%.
Both companies are set to rebound substantially in the near future and longer term. Investment in each can be made directly through share purchases, or, for a more diversified approach, investors could invest in the Financial Select Sector SPDR ETF (XLF), which lists both JPM and AIG among its top 10 individual holdings.