AIG CEO Robert Benmosche put himself at odds with most of the financial services industry and many members of Congress Thursday when he said that higher capital standards are justified for financial institutions given what happened in the 2008 financial crisis.
He implied that AIG will be regulated going forward under the Basel III capital standards being pilloried by most financial services industry officials, either as a systemically significant institution (SIFI) or as a savings and loan holding company.
“The regulators are not going to be criticized the next time around,” Benmosche said. “They’ll make sure we have enough money, and that's just the way it’s going to have to be,” he said.
Benmosche made his comments in an appearance on CNBC following release of the company’s fourth quarter earnings.
At that point, CNBC anchor Maria Bartiromo added that, “Right, because it wasn’t just the CEOs that made bad decisions with the 2008 collapse, it was the regulators being asleep at the wheel. I'm sorry but let's be honest here.”
“Maria, the fact is that the public is angry, because we made salaries and bonuses and the public wound up having to have the government stand behind us during a difficult period of time,” Benmosche said.
“The regulators are absolutely committed to make sure no matter what happens in a dire circumstance, every financial institution can survive it without the aid of the government.”
The common thread in his comments was that because of its problems, AIG expected higher scrutiny from its regulators and rating agencies and that it was adjusting its business operations to account for that.
“I can tell you now, the door is closed on AIG and the crisis,” Benmosche said.
“So, what you’re going to see going forward, the only big thing we’re dealing with is International Lease Finance Corp., the aircraft leasing unit, most of which is being sold to Chinese investors.
“… as long as we keep growing our earnings, de-risking the company, cutting expenses and continue to do appropriate capital management, I think this is a good story for several years to come,” Benmosche said.
The company reported operating income of 20 cents a share, far in excess of consensus analysts’ estimates of a loss of eight cents a share.
Benmosche also said that AIG managed a profit once charges were taken out for estimated costs of paying claims for Superstorm Sandy, cited by Benmosche as the “largest catastrophe in the U.S.”
The report indicated that the company’s net premiums in its Chartis property and casualty business were $6 billion, in line with expectations.
“You’ll see that our loss ratios for eight quarters now are slowly coming down,” Benmosche said. “So, the day-to-day results are terrific, and we had a couple of headline problems which caused the quarter. But still, with the huge loss of Sandy of $2 billion pre-tax, we still made a profit in the quarter.”
At the same time, Benmosche said that AIG is being run as if it were subject to federal oversight under heightened capital rules such as those proposed by international regulators.
Benmosche’s comments appeared to put him in conflict with Jamie Dimon, chairman and CEO of JP Morgan, most other institutions, community banks and members of Congress, as stated at various hearings.
He said a higher capital ratio for AIG and other large financial institutions is appropriate after what happened in 2008.
The reason, he said, is that given AIG’s recent history, regulators and rating agencies are going to require that it hold additional capital
Benmosche also said that AIG “is being looked at” by the Financial Stability Oversight Council as a potential SIFI but that the council “has not made a decision” as to whether it will be designated as a SIFI.
“We’re running the company as if we will be. We’re working with the Federal Reserve today, as our regulator, as a savings and loan holding company,” Benmosche said.
“So they’re there, we’re working with them, we’re going through the process with them, although it’s a little more limited versus being a SIFI,” he said.
But, Benmosche said, “We are proceeding as if we will continue to be regulated either as a SIFI or the way we are today.”
“So I think—I don’t expect dramatic change, and what’s important is we just have to adapt our earnings targets to having slightly more capital, but I think that’s not going to be a big problem at the end of the day,” Benmosche said.