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Christian graduated from university with a master degree in business administration, majoring in accounting, tax accounting and organization. After graduating he joined the transaction services department at a Big4 company working on mergers & acquisition deals in Frankfurt, London and... More
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  • AIG's CEO Benmosche On Cramer - Transcript March 2012 1 comment
    Apr 19, 2012 9:26 AM | about stocks: AIG

    AIGs (NYSE:AIG) CEO, Benmosche, was on CNBC last month outlining his overall plans for the recapitalization of the company. Below you will find the reproduction of the transcript. I have condensed the available information in my recent AIG post about the quantitative impact of the share repurchase on the book value per share. Nonetheless, it demonstrates the progress the company made on a qualitative and quantitative level and should make an interesting reading.

    cramer: let's talk about the greatest -- the most improbable comeback story i've ever seen in all of my years as an investor. let's talk about american international with aig. when aig collapsed three and a half years ago, just two days after lehman brothers went under and then went onto be propped up by bail out after bail out with treasury and the fed ultimately committing over $182 billion to keep this insurance company on life support, hardly anybody imagined that aig would be able to get back on its feet. yet that's exactly what happened.

    aig got its groove back and this turn around is a testament to the power of good management. after years of being so-so managed, lets call it that, aig turned the corner in august of 2009 when bob benmosche previously the head of met life, one of the most trusted execs in the insurance business took over as ceo. i have been a huge believer of mr. benmosche ever since he came on cnbc right after 9/11 and said he would pay out all of met life death benefits claims immediately, no one else was saying a word during that period. i'm not surprised that under his leadership aig has gone from being a bloated, over leveraged, overly complex, really impossible to understand financial company, to a leaner, meaner more focused firm. centered around its core insurance markets with a much cleaner balance sheet. benmosche sold assets, he reorganized the business. most important, he kept aig as a strong, working going concern.

    now, aig is in a position to take shares all over the place. and with the stock market rebounding like crazy, that should provide a nice boost to their earnings. because when you pay your premiums to an insurance company, like aig, they invest that money. sometimes in equities until the time comes when they need to pay out any claims. not only that, but aig has been paying the government back ahead of schedule. in the last month, the treasury department has recovered 4.6 billion of its investment in aig, including 1.5 billion that the company repaid hey, last week, last thursday. the government now owns 70% of aig down to 92% in january of last year, it seems possible that taxpayers could end up breaking even on the bailout and maybe even making money. three years ago, unimaginable.

    that's why i'm thrilled to have bob benmosche, president and ceo of american international group here with us tonight to talk about the company's incredible come back. yes, in person. mr. benmosche, welcome to "mad money."

    robert benmosche: thank you, jim, good to be with you.

    cramer: great to see you sir.

    benmosche: great to see you.

    cramer: we don't get enough feel good stories. this is one of them.

    benmosche: its a great story.

    cramer: and it looks like this company had a huge number of assets. it was, lets say, undermanaged. this aig is an aig that has a lot of earnings power, right?

    benmosche: it has a lot of power, a lot of earnings power, particularly, we have a franchise that's in tact. great management. and so we've got the assets, we got the people and we got the reputation because we know our business and we know it very well.

    cramer: how did you do it? i'm just going to ask you. i'm going to give you the floor because you know, everyone wrote this company off. this is supposed to be like lehman brothers. you're not supposed to be in business.

    benmosche: well, i must tell you that hank greenberg left behind a strong company. that's a fact. you can say a lot of things about hank, it was a strong company. and so i have the advantage of strong businesses, i have the advantage of great people. so when you take people and you give them the freedom to act, and they choose to act - responsibly, they can fix anything in this country. and so this is a testament to all the people of aig around the world that made this happen.

    cramer: but there was a division, a financial products division, that was unfathomable, that had a gigantic amount of risk, that had to be unwound, and unwound successfully before you could improve things.

    benmosche: we absolutely had to do that, but we had to do that the right way. when i got there, had we followed the plan, that was required at that point in time, we probably would have lost 10 to 20 billion dollars. what this team did at financial products, in spite of the criticism - huge criticism which i thought was unfair, the people who didn't cause the problem - because remember out of 44,000 trades, only 121 went bad. out of 44,000. and those people were long gone. these people stayed, they worked hard, they were professional - instead of spending 10 to 20 billion, by the time we unwound most of it, we made 4 billion. so that's an incredible story for them and their willingness to take the criticism, not liking it, but fixing things in this country.

    cramer: bob, a lot of the research is about break up value. now, i understand that because you've been selling off things. but a lot of your divisions are at a substantial discount to book value. if you trued up everything to what i think you're going to do the break up value of say 40 dollars in deutsche bank is way too low. what am i missing?

    benmosche: well, you're not going to see anything. look, the fact is, jim, you understand this. if you overconcentrate in a risk class, you may win big, but you lose big. this is about not having big peaks and not having deep valleys. this is about having broad, diversified businesses so that if the pnc business is having difficulty, you can rely on retirement. if the savings business or the mortgage insurance business and so on. so we want diversified risks so that we're not overconcentrated and that gives us, i believe, a better rating over time with the rating agencies. and that gives us more flexibility.

    cramer: now, you've got a terrific property casualty - international. dominant. you have that great sun light. but you have a united guarantee which does mortgage insurance. that has wiped out so many companies. was the underwriting just better here?

    benmosche: no, it is now. we have a multivariate model with 17 variables. we will ask you whether it is one wage earner with two jobs, or two wage earners in a household. we will ask where the house is located, the construction. so we have really designed that business. but in the past, we had insurance stuff that shouldn't have been insured because it was terrible underwriting.

    cramer: now, the government still owns a huge position of the company. you're generating a lot of cash. is the goal to keep selling divisions - there's some people talking about doing an ipo of your lease finance - and then continue to pay the government back. or is it over time? or is the goal here just to take down some money and just buy a huge chunk back and get the government out of the picture?

    benmosche: we want to do what's smart for the shareholder. it's as simple as that. everyone thinks the government being a shareholder is the problem. it's not. they let us run the company. this is not about the government telling us what to do. so we've got to be smart, we've got to do the right thing for the shareholders - the biggest shareholder being the government - and of course, we in the treasury would like the government to sell out so that we can end this chapter. no more question are we going to get money back from aig. we want to show the taxpayer gets back all of their money plus a profit.

    cramer: you think there's going to be a profit here?

    benmosche: 5 to 10 billion.

    cramer: ok, well look, everything else you've done is right on. i don't see why i should doubt that.

    benmosche: write that down.

    cramer: buy the 10 million, you're going to make for the american people.

    benmosche: all over, the american people between the fed and the u.s. treasury, they'll make between 5-10 billion profit when this is all done. and all of their interest, all of their fees and everything else.

    cramer: if that happens it will be - well you know, you are a miracle worker so it wouldn't shock me. deutsche bank just met with you. meeting with management increase our confidence. they're talking about a dramatic share cap down from 1.79 say to 1.2 billion shares. that would be remarkable. is that the government's stock coming out? how is that going to happen? if you just continue to just buy back over time, you can't shrink it in 2012 like that.

    benmosche: well, if you look at what's happened, we paid down the spv, special purpose vehicle. let's be clear. we paid 8.4 billion in march plus the 6 billion the treasury raised. so what's 3 billion is our money. the fact is we've paid the government back almost $15 billion in one month. that frees up collateral. so we have the aia shares are now free.

    cramer: right, they might release that lock up. that's worth a lot of money. what do you have left?

    benmosche: 8 billion dollars. you've got 7 billion almost of value in maiden lane iii. if the fed decides to sell off maiden lane iii, like it did madien lane ii, that's 7 billion that comes to us. so that's 15. we have the aircraft leasing company we'd like to take public at some point in time over the next couple of years, and therefore, you get over 22 billion - plus, in the spv, that special purpose vehicle we just paid a billion and a half for, has a billion and a half in it in cash, that's from the sale to met life that we're waiting for the escrow period to expire. a billion comes to us in november, another half a billion next june. so, all together, that 23 billion, what deutsche is saying, well, wait a minute. that doesn't include our dividends. it doesn't include our earnings and everything else. we said we could do between 25 and 35 billion of capital management between now and 2015. we're obviously way ahead of schedule. our expectation is that what we've just done now in march, we have an awful lot of capacity to buy back shares. my assumption will be we will be buying back those shares from the u.s. treasury.

    cramer: incredible. now, this is a company that some would say is still too unwieldy. should be in different parts. it sounds like, what you're saying is, you want all these different divisions that are left. but you are also talking about ipoing the lease finance. so not everything should be under the aig roof?

    benmosche: that's correct. we think, we've seen businesses that come together that make sense. so, for example, if you're selling personal lines, i just came back from south america, we have great franchises there. in addition to selling auto in their market, they'd like to sell life insurance. so there's a need, as you talk to a consumer, they would like to deal with one company, if they can. and so you're going through the expense of the direct market and i have you on the phone, hey, jim, would you like to buy our auto insurance? and by the way, what happens if you're killed in an accident, would you like some life insurance? that's where it comes together. and that's why you want to have some synergistic businesses with diversified risks, which reduces the amount of capital you need to support your business to have high ratings from the ratings agencies.

    cramer: did you have to sell anything you didn't want to just to be able to get out of the jam initially?

    benmosche: not really.

    cramer: really? so this is the aig that you want?

    benmosche: oh absolutely. absolutely. there are businesses we shouldn't have been in that are too complicated. i think we've just got to be in businesses that come together, make sense and it's a corporation that can be managed. look, hank and i debate this all of the time. i said hank --

    cramer: you talk to hank?

    benmosche: i do. he's a marvelous guy. i said hank, this business was too big. he said, it's not too big. i said maybe for you it's not too big. for anybody else to try to manage this business from aircraft leasing to rail cars to life insurance to pnc, worldwide, it's a very complicated business when you add financial products, sec lending and so on. it was too big for anybody to manage. i think now we're down to a size which i think is manageable.

    cramer: one last question. you. retired, come back. when are you done?

    benmosche: well, i'll tell you what. the good news is that my treatment from cancer is working.

    cramer: that's fabulous. congratulations. that's most important.

    benmosche: thank you. and so, right now, i want to stay active. i'm enjoying myself. the doctors say i'm doing okay. i want to just stay here and continue to be successful as long as the team, aig wants me to stay on. and more importantly, that the board sees the value of me staying on. so, this is about getting it right, showing that i believe people again can make a lot of things happen - this company is made up of incredible people. i want to be a part of that success so i'm not in a hurry to retire again. i had a nice retirement, but now on to something else.

    cramer: i know. what a fabulous story and i'm so glad about your health. that of course is more important than anything.

    benmosche: thank you.

    cramer: that is bob benmosche, president and ceo of aig, american international group, may be the greatest financial turnaround of our generation. stay with him, stay with cramer.

    Disclosure: I am long AIG.

    Themes: long-ideas Stocks: AIG
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  • santarelli21
    , contributor
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    Jim great story and what an amazing CEO Bob Benmosche is, I dont think AIG could have made it without him. Now that he has this business under control and sold off all the bad assets I think the sky is the limit for AIG and the shareholders are going to benefit greatly from what Bob has done with this company. I am LONG AIG and have long call options a few years down the road. What a great story and turnaround for AIG, especially for the tax payers to be getting their money back PLUS a profit. Well done Mr. Benmosche and we do see the great job and value you brought and have at AIG!
    8 May 2012, 03:10 AM Reply Like
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