American International Group officials said Friday they are preparing for regulation by the Federal Reserve Board in addition to state regulation.
Indeed, contrary to the views of most other insurance companies, Robert Benmosche, AIG president and CEO, said, “in a way, we see it as a big positive.”
The comments were obviously linked to the announcement after the market closed on Friday that the Treasury Department is selling 163,934,426 shares of its AIG common stock at $30.50 per share in a public offering.
AIG issued a simultaneous announcement that it has agreed to purchase 98,360,656 shares at the public offering price of $30.50.
At the same time, Benmosche did not specifically say when Federal regulation would begin and analysts did not ask him.
That’s because the new IPO is unlikely to trigger immediate Federal regulation.
It is believed that AIG will come under Federal oversight as a “systemically significant” financial company under a provision of the Dodd-Frank financial services reform law once federal ownership of the company dips below 50 percent.
But, analysts believe that the new offering will still leave Treasury owning 54 percent of AIG stock, above the 50 percent threshold needed to trigger federal regulation of AIG as a so-called systemically significant financial company, or “SIFI.”
Benmosche brought the issue of federal regulation to the front burner by initiating the conference call Friday morning that followed AIG’s second quarter earnings announcement by saying, “We’re often asked about regulation.”
He said he views it that way because it would help AIG handle what he downplayed as the 2008 “bump in the night” that, in fact, triggered a federal rescue of massive proportions.
“We really don’t know when we will be regulated but we do believe we will be regulated by the Federal Reserve, probably.”
“That seems the most likely candidate and we’re putting an enormous amount of effort and cost to make sure that we are Fed-ready …”
The AIG purchase of its own shares from the Treasury is expected to cost $3 billion, money it has set aside to purchase the shares.
However, the final level of Treasury ownership that will remain depends on how much the Treasury gets for the remainder of the offering.
And, a further factor is that the Treasury has granted the underwriters a 30-day over-allotment option with respect to approximately 24.6 million additional shares of AIG common stock.
In his comments, Benmosche said AIG has made a comprehensive study of how it will be impacted by federal regulation, and that its only concern is whether it should divest itself of its Wilton, Conn.-based thrift.
He acknowledged that AIG “is giving thought to whether we should now close the bank we have because we’re concerned about that aspect of it, and an insurance company invests very differently than a bank would …”
But aside from that issue, he said, “this is really about making sure we have a really good process and good controls, especially in the risk management arena, very good controls around how we determine we can handle a bump in the night that happened in 2008, for example.”
He explained to analysts that, “I don’t think there’s any concern we have about the businesses we have and so on.”
He said AIG has “discussed internally” the effects the Volcker Rule could have on us, and “so there is a little concern there.”
The Volcker rule, which is still being drafted, would severely limit the ability of financial firms to invest in private equity deals for their own account.