Activist investor Carl Icahn, who's pushing American International Group Inc. Chief Executive Officer Peter Hancock to shrink the insurer and boost returns, said the CEO must offer "a drastic strategic shift" at a presentation scheduled for next week. Icahn's plan includes splitting AIG into three units, one being United Guaranty Corp., a private mortgage insurer.
"It would be a mistake to squander this opportunity to present a bold new strategy and instead waste investors' time providing excuses for past underperformance," Icahn said Tuesday in a letter on his website. "Even the announcement of isolated asset sales without a clear commitment to a transformative strategy would be a disappointment and further destroy value."
Icahn is looking to increase urgency ahead of New York- based AIG's Jan. 26 presentation, while the insurer has been seeking a more patient approach. Hancock said in a letter to staff last week that "we will no doubt continue to hear more noise in the next few days." The CEO said he would pursue a "prudent, insightful plan" with the backing of the board.
Hancock has sold some units, including operations in Central America and Taiwan. Those deals pale in comparison to the announcement by MetLife Inc. 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.
Icahn cited MetLife's strategy, which is designed partly to limit regulation on operations including U.S. annuities. MetLife and AIG have been designated by a U.S. panel as systemically important financial institutions, a tag that can lead to tighter capital rules.
'Sensible Path'
"There is only one sensible path for AIG to follow: become a smaller, simpler company with a path to de-SIFI," Icahn wrote. If Hancock's strategy update is limited to small-scale asset sales and cost cutting, "then the little credibility management now has will be lost."
AIG advanced 43 cents to $56.52 at 10:09 a.m. in New York, narrowing its loss this year to 8.8 percent. That compares with the drop of 10 percent at MetLife. AIG gained 11 percent in 2015, while MetLife slumped 11 percent.
Icahn, one of AIG's largest shareholders, first openly scolded Hancock in an October letter when the activist demanded the insurer split into three companies and faulted the CEO for failing to meet profitability targets. The investor said a month later that he may solicit shareholders and seek a new director who would be available to take the CEO post if asked to do so by the board.
Paulson's View
Icahn's letter Tuesday made no reference to a three-way split. He instead proposed that Hancock shrink the company by selling or separating units and then focus on property-casualty coverage. That echoes a plan by hedge-fund manager John Paulson, who's firm endorses asset sales as an alternative to a split, according to people familiar with Paulson & Co.'s thinking in November. In addition to P&C insurance, AIG has units that offer life policies and retirement products, along with an operation backing mortgages.
Icahn's letter challenges key assertions that Hancock has made for keeping AIG together, including the CEO's claim that dividing the company could squander tax assets.
Hancock has said that a split up could wipe out at least a third of AIG's tax assets, which were worth more than $15 billion as of the third quarter, according to a regulatory filing. The company accumulated deferred tax assets in years when it was unprofitable, and they help limit future obligations to the government. The benefits decrease in value over time, so if unit separations are completed at a later date, the losses wouldn't be as steep, Icahn wrote.
Tax Assets
"It's still a loss, and it has to be a part of the equation of whether you think a split is worth it," Paul Newsome, an analyst at Sandler O'Neill & Partners, said by phone. "My view is that management has portrayed it accurately, but not necessarily in every scenario. The tax asset, at the end of the day, is something that will represent a loss to the company, perhaps on a real basis less than the roughly $5 billion they've talked about."
Icahn also demanded improved financial disclosures and sought to dent AIG's view that the board is unified, citing a discussion with Chairman Douglas Steenland.
"He agreed that if shareholders' wishes go against those of the CEO, the board would definitely listen, take notice, and pay attention to what shareholders want," Icahn wrote of Steenland, who took the post last year. "I was happy to hear this open mindedness because I believe management's credibility with shareholders is all but gone."
Steenland didn't return a message left with AIG seeking comment. The insurer said in a statement Tuesday that the company is committed to narrowing its focus. "AIG maintains an active dialog with shareholders, including Carl Icahn," the company said.
The latest Icahn letter is "positive for shareholders," Meyer Shields, an analyst with Keefe, Bruyette & Woods, said in a note to clients. "We think public pressure will force AIG management to support its strategic update with detailed earnings and capital data that can then be monitored in future periods."
