The U.S. government and American International Group Inc. have parted ways again, and for the insurer it’s the end of a nine-year journey of retrenchment and reinvention.
Friday’s announcement by the Financial Stability Oversight Council (FSOC) that it canceled AIG’s designation as a systemically important financial institution is a milestone in the company’s history. The New York-based insurer emerges from tight federal oversight as a far leaner operation than it was in 2008, when a tangled web of botched investments led to a $182.3 billion government rescue.
“It’s more of a traditional insurance company now,” Randy Binner, an analyst at FBR & Co., said in a phone interview. “A clean de-designation puts you in a safer harbor.”
The company had to do a lot of cleanup work to get to this point. Headcount tumbled to 56,400 at the end of last year, after surpassing 110,000 in 2008. Nearly $100 billion worth of assets were sold off around the world, ranging from an aircraft-leasing venture, ski operations at Vermont’s Stowe Mountain and a stake in a London airport. Major international life units were sold to a fierce rival, MetLife Inc. Meanwhile, AIG’s executive pay has been among the weakest in the industry when compared to revenue.
“Today, they are a much smaller, much less complex and much less interconnected financial institution,” said Jim Millstein, the former restructuring chief at the Treasury Department who helped steer AIG’s bailout and now runs his own firm.
All that helped the firm repay its bailout by 2012, and the U.S. actually earned a profit on the deal as the nation and its markets bounced back after the credit crisis.
“It was complicated,” Millstein said. “Once I understood the company and the value of its assets, I was reasonably confident that we would get all of our money back, but that depended on the recovery of the financial markets.”
Still, the SIFI designation was imposed in 2013 by the FSOC, a creation of the Dodd-Frank Act that was drafted to guard the financial system against excessive risk. AIG continued its remodeling, and is now dwarfed by other financial institutions by market cap. With a $55 billion market value, it’s a sixth of the size of JPMorgan Chase & Co., and a fifth of the size of Bank of America Corp.