Since its 2008 bailout, American International Group Inc. has delivered paydays for investment bankers, Warren Buffett and even departing executives.
Shareholders? Not so much.
AIG shares have lost 1.6 percent since the day of the U.S. government rescue, compared with a 98 percent gain in the S&P 500 Index. In the same period, Wall Street banks led by Morgan Stanley have collected an estimated $740 million in fees for helping the insurer sell assets, according to consulting firm Freeman & Co. AIG doled out about $10 billion to the conglomerate owned by Buffett to offset insurance risks, and the insurer’s executive merry-go-round has cost tens of millions of dollars in exit packages for departing top employees.
“It’s been a trying time to be an AIG shareholder for a number of reasons,” said Rob Haines, an analyst at CreditSights Inc. in New York. “AIG has made some really tough choices, which have been painful in the near term.”
More recently, AIG’s shares have dropped 3.2 percent since Carl Icahn announced his AIG stake in October 2015 and began pushing the idea of breaking the company into three parts. The S&P 500 has gained nearly 15 percent in the same period. Representatives for Icahn didn’t return calls seeking comment.
Buying Recommended
Even so, only one of the analysts surveyed by Bloomberg advocated selling AIG stock, while 13 of 19 recommended buying. Wells Fargo & Co.’s Elyse Greenspan said Monday in a note to clients that she expected the company to rise as return on equity improves under the newest chief executive officer, Brian Duperreault, who started this week. Ryan Tunis of Credit Suisse Group AG said he believes Duperreault can attract talent. Shares rose 1.4 percent in New York on Monday, closing at $61.82.
Still, AIG has come a long way. Investors who bought shares in 2011 when the U.S. Treasury Department sold them for $29 have seen their money double. Citigroup Inc. said in 2009 that there would be no value left once the insurer repaid the government.
AIG didn’t comment for this story.
AIG has been on the hook for higher-than-expected claims on policies written in prior years. To limit risk, it struck one of the largest-ever reinsurance deals with Buffett’s Berkshire Hathaway Inc.
AIG paid Berkshire $10 billion. In return, Buffett’s firm will pay for some claims in the future. Speaking at Berkshire’s annual meeting this month, Buffett said it was a good deal for his company.
“We’ll do well by getting $10.2 billion today, with a maximum payout of $20 billion” between “now and Judgment Day,” Buffett said. “The question is how fast we pay out the money.”
Wall Street is betting that Duperreault, AIG’s fourth top man since 2008, may be able to improve returns. Hiring him meant spending $12 million in cash to cover equity awards from his former firm, plus an annual pay package of about $16 million — 23 percent more than his predecessor’s. It will also pay Hamilton Insurance Group, the company Duperreault helped create, as much as $40 million over two years to waive non-compete agreements.
Equity Awards
Former CEO Peter Hancock, whose departure this month has been classified as termination without cause, will collect more than $9 million in exit pay. In coming years, he could also get more than $38 million tied to unvested stock awards. Hancock’s predecessor, the late Bob Benmosche, held stock awards worth about $23.4 million when he retired in 2014. They vested ahead of schedule at his death in 2015. Edward Liddy, who took over when AIG hit bottom in 2008 and left after less than a year, didn’t get a severance.
Three executives who never led the company were recently paid a combined $20 million in exit packages, AIG said earlier this year.
The insurer is still liable for tens of millions of dollars worth of equity awards previously given to departed executives that haven’t yet vested. Whether those awards will pay out largely depends on the company’s results.
AIG has shed about $100 billion in assets since 2008. The goal at first was to repay a U.S. government rescue that swelled to $182.3 billion. Morgan Stanley collected an estimated $150 million from AIG since the crisis, followed by Goldman Sachs Group Inc. at about $90 million, according to a Freeman & Co. analysis with data from Thomson Reuters Corp. Spokesmen for Morgan Stanley and Goldman Sachs declined to comment.
More recently, AIG has sold assets in Brazil, Turkey, Chile and Japan.
“They’ve let shareholders down,” Tunis said last week in an interview. Still, he rates the stock as “buy” and sees a chance for Duperreault to “reinvigorate an underwriting culture that you haven’t seen, maybe ever.”