American International Group Inc. Chief Executive Officer Peter Hancock dismissed activist investor Carl Icahn’s proposal to split the company into three insurers, saying a division would limit earnings diversity and reduce the value of some tax assets. The stock declined in New York trading.
“Management and the board have carefully reviewed such a separation on many occasions, including in the recent past, and have concluded it did not make financial sense,” Hancock said of Icahn’s plan in a conference call Tuesday. “We of course will meet with him to further share our conclusions and give him an opportunity to elaborate on his views.”
Icahn disclosed last week that he’d acquired a stake in New York-based AIG and said the insurer should divide into three companies, one offering property-casualty coverage, another selling life policies and a third backing mortgages. AIG trades for less than book value while the stocks of most large property-casualty insurers are above that metric. The activist investor also said that shrinking the company would help avoid the capital restrictions that are imposed on the largest financial institutions.
Hancock responded Tuesday that the company has still been able to repurchase billions of dollars of stock. He also highlighted efforts to streamline the business, including a $500 million plan to restructure operations by cutting jobs and improving information technology.
AIG intends to dismiss about 23 percent of the top 1,400 members of senior management, he said. That would be a reduction of more than 320 jobs.
“No area of the firm is left untouched” by the cuts, which will targeted to match the prospects of various units, Hancock said. “With a more focused, narrower strategy going forward, we just need fewer generals on the field. These are quite talented and highly-paid individuals.”
Hancock also said he’d be open to more asset sales, after exiting a stake in AerCap Holdings NV. The CEO said he considers the United Guaranty mortgage insurer a “core” business, but would be flexible if the right opportunity came along.
‘No Sacred Cows’
“There are no sacred cows,” Hancock said.
AIG dropped $2.85, or 4.5 percent to $60.89 at 9:49 a.m., the biggest fall since August. The company posted a third- quarter net loss late Monday as hedge fund results hurt the investing portfolio.
“Earnings results were disappointing all around,” Paul Newsome, an analyst at Sandler O’Neill & Partners, said in a note to investors. “Much of the earnings shortfall was driven by materially lower-than-anticipated net investment income.”
Icahn told Fox Business in an interview before AIG’s conference call that shareholders are eager for change.
“I don’t think it’s a well-run company. I think the costs are way, way, way too high,” he said in a televised interview. “A company shouldn’t be held hostage by management and the board. But I’m not starting a proxy fight right now. I spoke to Mr. Hancock very briefly, and he seems like a nice enough guy so I look forward to talking to him.”
Moody’s Investors Service said Monday that a split could be a credit negative. And Hancock said Tuesday that it could increase expenses, distract management from cost-cutting plans and reduce the value of deferred tax assets. The company accumulated DTAs in years when it was unprofitable, and they help limit future obligations to the government.
“Breaking up the company would result in a loss of at least one-third of our DTA of more than $15 billion,” he said. “The amount lost would depend on the scenario of which business or businesses may be spun out, and their respective income projections.”
–With assistance from Katherine Chiglinsky and Christie Boyden in New York.
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