“That is what legendary investor Carl Icahn is surely counting on in penning an open letter to AIG’s CEO, Peter D. Hancock, excoriating him for a “‘wait and see… for years’ strategy void of decisive leadership”.
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Icahn’s campaign highlights how a few large financial companies are being given an incentive to break up as regulators impose costs on them in the wake of the financial crisis.
(This phenomenon is not restricted to the price-to-book value multiple, either: On the basis of price to next 12 months’ earnings, AIG shares’ average discount to the company’s peer group over the past five years has been 18% (current: 28%)).
A representative for Mr. Icahn wasn’t immediately available for comment. AIG, the largest commercial insurer in the United States and Canada, was labeled systemically important by a top US regulatory panel in 2013.
AIG jumped 3.9 percent to $63.30 at 9:23 a.m.in New York. The designation brings increased Federal Reserve oversight.
Icahn didn’t disclose the exact size of his stake. He said the arrangement responds to customer demand and makes more sense than the previous split, which had a life unit and a property-casualty operation. AIG also has been shedding assets to boost capital, exiting its stake in aircraft-lessor AerCap Holdings NV and selling shares of consumer-finance company Springleaf Holdings Inc.
AIG said it had received the letter and that significant steps had been taken to reposition the group by simplifying and lowering risk. “We remain on course and are determined to continue and accelerate these efforts”.
The US bailed out AIG at a cost of $85 billion, money the company has since repaid.
By comparison, life insurer Prudential Financial is down 10% in 2015, while Travelers is up nearly 8%.
I suspect that today’s “Icahn pop” in AIG’s shares still leaves room to profitably ride this extraordinarily successful investor’s coattails.
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Hancock’s predecessor at AIG, Robert Benmosche, resisted calls in 2011 for a breakup, saying the insurer benefits from having a variety of businesses.
