AIG chief pressed to fend off Icahn’s break-up calls
Pressure is mounting on Peter Hancock, the president and chief executive of American International Group, to come up with a compelling plan to boost profits at the giant insurer.
AIG has been under siege from shareholder activists led by Carl Icahn, the veteran campaigner, who wants to see it split into three in order to free capital and escape heavy regulatory burdens.
Mr Hancock’s future has become part of the conversation in recent weeks at well-attended shareholder events organised by analysts, after Mr Icahn hinted he could try to launch a boardroom coup.
Mr Hancock, a former head of the property-casualty unit who was promoted to the top job last year, has argued for keeping the conglomerate more or less intact, announcing plans to thin the ranks of senior managers while promising further “streamlining” measures next month.
But one shareholder told the Financial Times that he thought Mr Icahn’s break-up proposal was smart, and that Mr Hancock might struggle to improve on it. “He has to come out with tremendous data and force as to why [the break-up does not make sense], because the current plan is not going to cut it,” he said.
Another long-term shareholder said Mr Icahn’s plan was unrealistic, but that time was running out for Mr Hancock. Third-quarter results at AIG were the worst in four years, as a big charge for restructuring came on top of poor performance across the business.
“If there are no tangible results in the near term, he realises he is in the hot seat here,” the shareholder said.
The comments are a sign of tensions over the optimal structure for AIG, which was kept alive by a $180bn government bailout at the height of the financial crisis. Under former chief Bob Benmosche, who stepped down in September last year, the group steadied itself by selling assets and restructuring core divisions. Since then, according to Mr Icahn, executives have failed to take similarly radical measures and have delivered consistently sub-par returns.
In a statement on Wednesday, AIG said that it “continues to take steps to streamline its business, narrow its focus to clients, products and geographies that present opportunities for profitable growth, improve financial performance, and return excess capital to shareholders”.
The company added that management and the board of directors had “carefully reviewed a separation of AIG’s businesses on many occasions, including in the recent past, and [had] concluded that it did not make financial sense”.
Mr Icahn, who has been publicly backed by Paulson & Co, another activist investor, argues that AIG should divide into three companies, one offering property-casualty coverage, another selling life policies and a third backing mortgages. Icahn Associates owns about 3.4 per cent of the group’s shares, while Paulson owns about 1.2 per cent.
Josh Stirling, an analyst at Bernstein who claims to have canvassed “hundreds” of AIG investors, said there is broad disaffection over the pace and scale of the measures announced so far. Some were bemused, he said, by a sudden management reshuffle earlier this month involving the chief financial officer and another four members of AIG’s 15-strong operating committee.
“It seems nobody [at AIG] has a clear view of what the company should do,” he said, adding that few investors appeared to have faith in Mr Hancock’s leadership.
“When you speak to people, it’s directionally clear,” he said. “If there’s support for Peter, I haven’t heard it.”