(Bloomberg) — American International Group Inc., the insurer facing pressure from activist shareholder Carl Icahn for a breakup, posted a third-quarter loss as investment results deteriorated. The company plans to cut as many as 400 senior- level jobs.
The net loss of $231 million, or 18 cents a share, compares with profit of $2.19 billion, or $1.52, a year earlier, the New York-based company said in a statement Monday. Operating income, which excludes some investment results, restructuring costs and expenses tied to the retirement of debt, was 52 cents a share, about half the average estimate of 22 analysts surveyed by Bloomberg.
Icahn told Chief Executive Officer Peter Hancock in a letter last week that AIG should split into three insurers to escape the restrictions imposed on the largest financial firms. One company would focus on life insurance, the second on property-casualty coverage and the third on mortgage guaranties, under the billionaire’s proposal. Icahn has a stake of about 2 percent, according to people familiar with the holding.
“Given the entry of an activist, for whom disaffected shareholders are a major opportunity, management is going to have to walk a tightrope in coming days to satisfy already skeptical investors,” Josh Stirling, an analyst at Sanford C. Bernstein & Co., said in a note before results were released Monday. AIG is “too large, too complex, too costly and, as a systemically important financial institution, is both financially and strategically disadvantaged.”
The insurer said restructuring initiatives, which include severance costs and information-technology improvements, will save $400 million to $500 million a year. The 400 cuts would represent about a fifth of the senior-level workforce, according to a person familiar with the plan who asked not to be identified discussing personnel matters.
AIG gained 14 percent this year to $63.74 as of 4 p.m. Monday, beating the 2.2 percent advance of the Standard & Poor’s 500 Index. Still, the company trades for less than its book value, which was $79.40 a share as of Sept. 30, down from $79.74 on June 30. Most large property-casualty insurers trade for more than the measure of assets minus liabilities.
Hancock and other executives are scheduled to discuss results in a call with analysts and investors Tuesday morning. AIG results were released after the close of regular trading. Icahn’s letter included a statement from hedge fund manager John Paulson, another AIG shareholder, saying that AIG could trade for more than $100 a share if it were split into three companies.
Net investment income slipped at the main units on results from hedge funds and the decline in the value of AIG’s holdings in People’s Insurance Co. (Group) of China Ltd. and PICC Property & Casualty Co. Travelers Cos. and XL Group Plc are among insurers that have said third-quarter results were pressured by alternative holdings, such as real estate partnerships or hedge funds.
–With assistance from Noah Buhayar in Seattle and Claire Boston in New York.