AIG American International Group Inc

   (FROM THE WALL STREET JOURNAL 1/27/16) 
   By Ryan Tracy 

American International Group Inc.'s move to pare down its operations looked like a baby step compared with recent moves by other nonbank financial institutions branded systemically important by regulators.

While MetLife Inc. this month cited the new regulatory burden as a central reason for it to seek to divest one of its core businesses, AIG made the case that even with the stricter rules that come with its size, its whole is greater than the sum of its parts. AIG is one of four nonbank financial firms labeled as systemically important financial institutions, or SIFI.

"Near-term breakup of AIG would detract from shareholder value," the company said in its investor presentation Tuesday.

AIG also said it "has a lower risk profile than other nonbank SIFIs across key metrics," citing data showing that it has fewer assets and funds itself with less borrowing compared with Prudential Financial Inc. and MetLife, two other firms that have received the SIFI tag.

That suggests that AIG may believe it won't face as high a regulatory burden as those firms. Federal regulations are generally tailored to a firm's riskiness, but regulations for insurance companies labeled as systemically important haven't been written yet.

Douglas Steenland, AIG's nonexecutive chairman, said the board has "full support for the plans that [CEO] Peter Hancock and his management team have put forward."

Some of AIG's shareholders have been arguing that the company would be worth more if it was split into parts, each of which could shed the stricter regulations that come with being big.

Indeed, other institutions have reached that conclusion, and their reactions to being labeled systemically important have been more drastic.

General Electric Co.'s finance arm, GE Capital, is shrinking its assets even more significantly and has said it would seek to get the systemically important label repealed this year.

No company has yet succeeded in having the label removed, although MetLife is fighting it in court. AIG might have a harder time succeeding in that task, given the central role that AIG played in the financial crisis.

For now, AIG's management appears focused on restructuring itself. The company also appeared to position itself to shrink further in the future if results don't meet expectations, namely by reorganizing into nine separate business units.

That could make those divisions easier to divest, and it could also help AIG with certain regulatory demands. For instance, it might have an easier time demonstrating that it has a credible "living will" bankruptcy plan with regulators if it could easily sell certain businesses to raise cash in a pinch.

(END) Dow Jones Newswires

January 27, 2016 02:47 ET (07:47 GMT)

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