(Bloomberg) — American International Group Inc. knows what it’s like to be circled by hawks.
Under pressure in 2009 to repay the insurer’s bailout, company executives were in a race to sell assets. Then Robert Benmosche applied the brakes when he took over as chief executive officer, demanding better prices on everything from an aircraft unit to derivative contracts. He eventually handed the U.S. government a $22.7 billion profit.
His successor, Peter Hancock, has been charting a similar path as he seeks to avoid being perceived as a forced seller while simplifying the insurer. He scheduled a Jan. 26 presentation to outline his approach after rebuffing investor Carl Icahn’s demand to break AIG into three companies. Any appeal by Hancock for patience could frustrate the billionaire activist, who said in October that “the time to act is now” and then wrote Tuesday that the CEO’s credibility will suffer unless he announces a drastic strategy shift.
After AIG dealt with the U.S. government as a majority shareholder in the financial crisis, the tension with Icahn and billionaire investor John Paulson “is something that pales in comparison,” Robert Haines, an analyst at CreditSights, said in an interview. “It’s not live-or-die like it was back then, but they have to be cognizant of what shareholders want. He has to say something, or the stock’s going to get hit really bad.”
Hancock, 57, can point to the exit of an investment in AerCap Holdings NV and the sale of shares in companies like Springleaf Holdings Inc. and China’s PICC Property & Casualty Co. Those deals helped fund more than $9.5 billion of share buybacks last year, and AIG has beaten the Standard & Poor’s 500 Index since he took over in September 2014.
The CEO has also sold some small units, including operations in Central America and Taiwan. But those deals were dwarfed by rival MetLife Inc.’s announcement last week that it will sell, spin off or have an initial public offering for a U.S. retail business with $240 billion in assets. A spinoff of AIG’s life and retirement consumer business would have operating earnings of about $2.2 billion, Bloomberg Intelligence said in a note Wednesday. That would be bigger than MetLife’s plan, according to the report.
MetLife, which has been designated by a U.S. panel as a systemically important financial institution, said the move could limit capital requirements on products like variable annuities. Hancock has said the benefits of shedding SIFI status aren’t such a big deal, and that splitting could erode the value of tax assets and jeopardize AIG’s credit rating. Moody’s Investors Service said last week that MetLife is being reviewed for a downgrade.
“I’m not a believer that there’s a wholesale dismantling of AIG coming,” Charles Sebaski, an analyst at BMO Capital Markets, said in an interview. “I don’t expect asset sales like what we’ve seen before,” when AIG shrunk by half from the financial crisis through 2013.
AIG learned hard lessons back then that raising cash isn’t always as simple as investors would like. One would-be buyer for the International Lease Finance Corp. plane unit was unable to deliver the funds after agreeing to a deal. Other deals for units in Asia stalled or collapsed.
Benmosche insisted on demanding what he saw as the right price, even if it meant slowing down divestitures at a time when the government was eager to shrink New York-based AIG. He said in 2009 that patience in exiting derivative positions would protect the insurer.