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May 27, 2014 at 12:28 PM
(Bloomberg) — American International Group Inc. warrants jumped to a record, benefiting investors like Bruce Berkowitz’s Fairholme Capital Management LLC, which held the securities for years.
The contracts advanced 1.1 percent to $24.03 at 10:05 in New York, beating the record of $24 on their first day of trading in January of 2011. The warrants, which traded as low as $4.66 in October of that year, allow investors to buy AIG common stock at $45 apiece by Jan. 19, 2021. Shares of the New York-based insurer climbed 0.4 percent to $53.83 and are up about 20 percent in the past year.
Goldman Sachs Group Inc. raised its rating on the stock May 21 to buy from neutral and lifted its 12-month price target by 26 percent to $63 a share. New York-based AIG has more opportunities to deploy capital than other large financial firms that may face limits on share buybacks because of regulation, said Goldman Sachs analysts led by Michael Nannizzi.
“We see an important structural shift in the risk profile of the firm’s P&C operations as the company subtly shifts towards higher-margin property business and away from lower margin casualty business,” the analysts wrote. “We also believe opportunities exist to deploy capital accretively into the life business where AIG has less exposure than peers to capital-intensive, high-return-on-equity products.”
The insurer, which was majority owned by the U.S. for more than four years starting in 2008, unveiled a plan in 2010 to issue warrants to shareholders. The transfer was part of an effort to dissuade investors from dumping the insurer’s stock amid its restructuring, people familiar with the plan said at the time.
Berkowitz’s Embrace
Fairholme is the largest holder of AIG warrants, with 24.5 million as of March 31, according to data compiled by Bloomberg. The firm is also one of the top investors in the stock, with about 75.7 million shares.
