Seeking Alpha

Ron Shelp's  Instablog

Ron Shelp
Send Message
As the author of Fallen Giant: The Amazing Story of Hank Greenberg and the History of AIG, Ron Shelp is perhaps the leading expert on “the company America loves to hate.” Over the past few years, he has spoken to business groups throughout the U.S. and Europe about AIG’s role in the global... More
View Ron Shelp's Instablogs on:
  • Looking Ahead to AIG Second Quarter Results - Recovery Continues But Profits May Be Down
    Tomorrow, AIG releases its second-quarter results and analysts predict a 99-cent-a-share profit, which would be down from this period last year. Revenue is expected to drop by about a third. Since AIG’s general insurance and domestic life insurance businesses account for about half its revenue, we’ll want to look closely at how those divisions are performing.
    Still, overall, the AIG story is positive.Bloomberg reports AIG has reduced the debt it owes on a Federal Reserve credit line by about $3.5 billion over the last three months. One unit, American Life Insurance Co., reported partial results for the second quarter - net income tripled in the six months ended May 31 to $694 million. And AIG is being helped by the stabilization in mortgage assets held in the Maiden Lane entities created in 2008 to remove AIG’s toxic securities.
    You can credit a lot of AIG’s recovery to CEO Robert Benmosche, who has finally brought stability and firm leadership. But the big question remains – will AIG be able to pay back taxpayers? AIG is planning to sell Alico to MetLife and put AIA Group up for a public offering. AIG has no choice but to sell its non-core businesses so it can pay down the Fed credit line. But in the long run, that’s only going to make it more difficult to earn revenue and increase profits. 
    AIG may now be winding down that divestment strategy.  AIG previously said it was considering spinning off its property-casualty insurance business, and now reportedly it plans to keep it. I think after AIG gets rid of Alico and completes the AIA IPO, it needs to stand firm, and concentrate on growing its business.
    In June, the Congressional Oversight Panel predicted the government will likely remain a significant shareholder through 2012 and said U.S. taxpayers "remain at risk for severe losses."  But Fed Chairman Ben Bernanke has told Congress he thinks AIG will repay everything. AIG stock is up about 32% since the beginning of the year and value investors are recommending a buy. If this kind of progress continues, taxpayers could even make some money when the government unloads its 80% ownership.


    Disclosure: Long AIG
    Aug 05 12:44 PM | Link | Comment!
  • No apologies from the man who crashed the world
    When I read Joseph Cassano’s prepared testimony for the Financial Crisis Inquiry Commission, there was one phrase that really hit me: “it was the right thing to do.” Cassano, the man whose credit default swap shop at AIG went so haywire it triggered a global financial catatastrophe, actually said this twice. It was the reason AIG decided to stop writing deals with subprime exposure in 2006.   And it was also why he volunteered to take no bonus for 2007. In nine pages of prepared remarks, there were no apologies, no remorse, no contrition.

    Fortunately, when Cassano sat down in front of the congressionally appointed commission in Washington, he didn’t read the self-serving document, which was too confusing for anyone but himself to understand. And he was gracious enough to tell the commission they shouldn’t blame his team at the Financial Products Unit--"Don't criticize them, criticize me."
    Well they did, but it took a lot for the commission to get Cassano to admit he did anything wrong. When Cassano was asked if he made any errors, he said, “When I think about the single error that may have been made by me I think how when I retired I didn't volunteer to be the chief clear, chief negotigator for the collateral calls.” Cassano went on to say if he hadn’t left he could have gone to the counterparties and “negotiated a much better deal for the taxpayers than what the taxpayers got.”
    Wow. One error from the man who crashed the world, as Michael Lewis dubbed him in his brilliant Vanity Fair piece. And if only he had had stayed at AIG,  I guess everything would have turned out so much better.
    I commented on Cassano’s testimony on Bloomberg television, saying I was really angry because Cassano not only walked away from AIG with $300 million; he was paid a million dollars a month to consult for AIG afterwards.
    After two years of silence, Cassano finally spoke this week, now that he doesn’t have to worry about facing charges. Afterwards, his lawyers said Cassano hopes his testimony “helps to correct the serious misinformation now buried in the public discourse about AIG FP."   But he can’t rewrite history, and the only thing Cassano accomplished was to give the public a good look at the hubris that led to AIG’s downfall.


    Disclosure: Long AIG
    Jul 03 8:27 AM | Link | Comment!
  • AIG's Asian Gamble
    The collapse of the AIG-Prudential deal could turn out be more promising than the original agreement for the British insurer to buy AIG’s largest Asian life-insurance business, AIA, for $35 billion dollars. 
    First, it shows that AIG’s board is far more independent than during the Greenberg era. Benmosche battled a highly contentious board over the original Prudential deal until he was able to push it through in March. But this time, he couldn’t get his way.  AIG’s board hung tough and refused to accept Prudential’s lower offer. It was reportedly unanimous except for Benmosche.

     
    The big question is why AIG’s board turned down $30 billion, which is more than is being predicted for any IPO. Who knows what went on in that board room, but most interesting reason I have heard is that some directors thought they could eventually sell AIA for a lot more to the Chinese. And already we’re hearing reports that Assicurazioni Generali SpA, Europe’s third-biggest insurer, may be interested in buying parts of AIG’s operations in Asia.

    The directors might also prefer to sell off slices of AIA gradually in an IPO, while the business continues to grow. So, over the long haul, they could beat the Prudential price. Since the U.S. government owns nearly 80% of AIG and could have vetoed the board’s refusal to take the lower offer, it suggests they buy this argument.
    In fact, Treasury Secretary Timothy Geithner praised the company’s decision to walk away from the Prudential offer.  He told reporters yesterday,”A.I.G. is now free to pursue a bunch of other options to help maximize the return, reduce any risk of loss to the taxpayer. They have got a very strong management team, a much stronger board in place, making incredibly impressive progress frankly in restructuring that entity.”
    Geithner’s faith in AIG is pretty remarkable, reflecting the turnaround Benmosche has been able to pull off since he took over last August.  AIG’s board is betting the company will do even better and Geithner is letting that bet ride. Of course, the taxpayers who provided the stakes don’t have a say.   I personally would have bet on Benmosche over his board, but I applaud Geithner for not interfering. We’ll see how well AIG can do with AIA and let’s hope neither taxpayers nor investors come up short.
     
     


    Disclosure: Long AIG
    Tags: AIG, AIA
    Jun 03 12:11 PM | Link | Comment!
Full index of posts »
Latest Followers

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.