(Bloomberg) — After General Electric Co. began selling finance operations to exit too-big-to-fail status, American International Group Inc. Chief Executive Officer Peter Hancock said it wasn’t clear that escaping the government risk tag would offer significant benefits to his company.
Then in November, Hancock rebuffed investor Carl Icahn’s proposal to break up AIG into three insurers, even as the activist said his plan would help AIG exit its designation as a non-bank systemically important financial institution. Now, the pressure is increasing further after rival insurer MetLife Inc., another non-bank SIFI, announced a plan Tuesday to separate much of its U.S. retail operation.
“This is a significant development in the SIFI de-designation debate,” said Isaac Boltansky, an analyst with Compass Point Research & Trading LLC in Washington. “Beyond MetLife, this announcement further crystallizes the compliance and operational burden of the SIFI tag, which is likely to intensify calls for AIG to consider embracing a strategic shift resulting in de-designation.”
MetLife, the largest U.S. life insurer, said it’s considering a sale, spinoff or public offering of much of the retail operation. Higher capital requirements from the SIFI label could put the business at a “significant competitive disadvantage” under the MetLife umbrella, CEO Steve Kandarian said Tuesday in a statement. The insurer has sued to overturn that designation.
The stock jumped on Kandarian’s plan, climbing 8.7 percent in early trading to $45.65 at 8:30 a.m. in New York. AIG advanced 2.7 percent.
‘Accelerate the Pressure’
MetLife’s rally will “sustain or accelerate the pressure on AIG CEO Peter Hancock to unveil something similarly dramatic,” Meyer Shields, an analyst at Keefe, Bruyette & Woods, said in a note. “This news will only intensify AIG’s widely reported activists’ pressure.”
MetLife had slumped 13 percent this year through Tuesday’s close and fell 11 percent in 2015 as the New York-based insurer cut profit targets amid pressure from low interest rates and uncertainty about regulation. Kandarian said in May that MetLife would probably have a return on equity of about 11 percent in 2016, down from a prior forecast of 12 percent to 14 percent.
Icahn has mocked Hancock for being unable to meet AIG’s target of a 10 percent return on investment. The activist also has said the SIFI designation, which can lead to increased Federal Reserve oversight and tighter capital rules, is a tax on size.
Hancock was asked as far back as May, after GE announced its plan to exit SIFI status through asset sales, if he should pursue the same path.
“Should you get off this off-ramp, there’s 200 other regulators that are also very interested in how we run the company,” Hancock said at the time. “So it’s not clear to me that getting off that off-ramp changes management’s flexibility in any material way.”
He was also dismissive of Icahn’s push to split into a property-casualty company, life insurer and mortgage guarantor. Hancock has said breaking up the company could jeopardize credit ratings and squander tax assets. The insurer had no comment on MetLife’s plans, said Jon Diat, a spokesman for AIG.
‘Not an Option’
Hancock has set a Jan. 26 meeting to outline his strategy. He has also highlighted his efforts to sell assets, such as a Central American unit and a stake in an airplane-leasing company, while repurchasing AIG stock.
Many investors have nonetheless grown impatient with AIG, whose share price has slumped 6.5 percent this year in New York trading. Josh Stirling, an analyst at Sanford C. Bernstein & Co. who surveyed AIG stockholders, said most investors want AIG to exit SIFI status and sell units or spin off divisions.
“The status quo is not an option, for management’s strategy has practically no support,” Stirling wrote of AIG Tuesday in a note before MetLife’s announcement.