Under shadow of Volcker Rule, AIG looks to sell thrift

Benmosche also said he fully expects the federal government to sell its remaining shares in AIG “very quickly.”

Benmosche made his comments in response to a Wall Street Journal story that quoted a Federal Reserve Board spokesperson as saying that as soon as the federal government’s share of AIG falls below 50 percent of the company’s stock, the Fed will oversee AIG as a thrift holding company.

If so, AIG would become the first company that is first and foremost a domestic-based insurance company to be federally regulated.

The Office of Thrift Supervision oversaw the AIG thrift before its demise last July.

But the McCarran-Ferguson Act of 1945 mandates state oversight of insurance companies unless a federal law specifically says otherwise. And, the Federal Reserve Board has been barred by law from overseeing insurance holding companies since the Gramm-Leach-Bliley Act was enacted in 1999.

The National Underwriter has been saying that for several months, but the prospect of federal regulation became imminent when the Treasury announced that it was selling a huge chunk of AIG shares.

Treasury ownership is currently 53.4 percent, but sale through an initial public offering of most of that over the last several days will leave the Treasury Department holding only a 15.9 percent stake.

Benmosche said AIG will likely sell its thrift soon because long-term assets held by insurers would be restricted by the Volcker rule, which severely restricts proprietary trading, that is, a financial institution investing its own funds for profit, for example, in private equity.

Benmosche said proprietary trading is critical for insurers because of the long-term nature of their liabilities, and the thrift, based in Wilton, Conn., is relatively small, with $1 billion in deposits, and therefore not much of a money maker.

In other comments, Benmosche said it is unlikely AIG will be able to unload its leasing unit soon. “Well, we’re still working on that,” he told the anchorwoman, Maria Bartiromo. “The markets are not ready for an IPO of an aircraft leasing company. There’s a lot of concern in the industry, we’ve had some bankruptcies, so that’s just going to take a little longer to get done,” he said.