AIG: Financial Winner, Again

NEW YORK ( TheStreet) -- American International Group ( AIG) was the winner among U.S. financial name on Thursday, heading into the holiday weekend with shares rising over 1% to close at $32.91.

The broad indexes were mixed, after the U.S. Labor Department reported that initial unemployment claims for the week ended March 30 were a seasonally adjusted 357,000 declining from 363,000 the previous week. Continuing claims for the week ended March 24 fell 16,000 to a seasonally adjusted 3.34 million.

Earlier on Thursday, stocks were weak, after yields on Spanish 10-year bonds rose another 12 basis points to 5.81%, their highest level during 2012.

The KBW Bank Index ( I:BKX) pulled back slightly to close at 48.86.

AIG's shares have now returned 42% year-to-date, following a 52% decline during 2011.

The shares trade for 11 times the consensus 2013 earnings estimate of $2.89, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $2.73.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

BernsteinResearch analyst Josh Stirling on Wednesday upgraded AIG to an "Outperform" rating from "Market Perform," while raising is price target to $45 from $29, saying the shares had "50% upside from here," from the belief that the company "will be able to sell its remaining non-core assets in coming months, anchor further offerings 'at cost' by the Treasury, and perhaps even exit the government in time for a 'victory lap' before this fall's election," to "drive book value, earnings, and eliminate the number one reason "not to own" this discounted name."

The government owns about 70% of AIG's shares, and Sterling said that "if the markets cooperate, AIG should be able to sell their remaining $22b of non-core assets and anchor coordinated public offerings to retire nearly 65% of the Treasury's $36b stake," and with AIG soon able to "be a buyer in size," the government's $29 cost basis is more likely a floor, than a ceiling, as is still more commonly believed."

On Thursday, Bank of America Merrill Lynch analyst Jay Cohen reiterated his "Buy" rating for AIG, while leaving his price target unchanged at $40, saying that "despite the repurchase of $3 billion of stock from the Treasury last month and net debt retirement of $6.4 billion, we see an even more substantial return of capital to owners ($29 billion) than our previous estimate."

Cohen said share repurchases "of $10 to $11 billion over the next 12 months is possible," including buying back "a substantial among of stock from the U.S. Treasury, "which would seem to be a compelling investment opportunity with the shares trading at 55%-60% of book value."

Cohen raised his first-quarter operating EPS estimate for AIG to $1.14 from 77 cents, and raised his full-year estimate for 2012 to $3.40 from $3.00, "on positive expected marks" on the company's remaining 45% interest in AIA Group. AIG sold 55% of its AIA stake during March, raising about $6 billion in cash.

Cohen's EPS estimate for 2013 is also $3.40.

Interested in more on American International Group? See TheStreet Ratings' report card for this stock.

Thursday's financial loser was New York Community Bancorp ( NYB) of Westbury, with shares sliding 2% to close at 13.62.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

The shares have now returned 12% year-to-date, following last year's 30% decline, and trade for 1.9 times their reported reported Dec. 30 tangible book value of $7.04, and for 12 times the consensus 2013 EPS estimate of $1.10.

Based on a quarterly payout of 25 cents, the shares have a high dividend yield of 7.34%. Despite high dividend payout ratios over the last two years New York Community Bancorp has managed to maintain the 25-cent payout for 32 consecutive quarters.

Citigroup analyst Josh Levin on Thursday initiated Citigroup's coverage of New York Community Bancorp with a "Sell" rating and an $11 price target, which "is the lowest on the Street and well below the average target price of $14."

Levin said that Citigroup believed it was "more likely than not that bank regulators will require NYB to reduce its dividend given that (1) NYB's dividend payout ratio will likely be in excess of 95% in '12 and could exceed 100% (2) its tangible equity to tangible assets ratio is ~7.8% and should continue to decline given that NYB is unlikely to materially grow or retain its earnings in '12 and '13 but is growing its assets."

The analyst added that "although anticipating if and when a regulator might force a dividend cut is a difficult proposition, we note that in early '13 NYB's dividend policy will come under new scrutiny as Dodd-Frank will require NYB to submit its capital plan to the Fed for approval."

Citigroup estimates that NYB will post first-quarter EPS of 25 cents, with earnings of $1.05 for all of 2012, followed by 2013 EPS of $1.11.

KBW analyst Fred Cannon has a different opinion of New York Community, and last Friday reiterated his "Outperform" rating for the shares, following the company's agreement to purchase $2.3 billion in deposits from Aurora Bank, FSB, of Wilmington, Del., for a premium of $24 million.

Cannon's price target for the shares is $15, and he said the deposit purchased looked "like a good deal for NYB as it provides the company several viable options to grow earnings."

Interested in more on New York Community Bancorp? See TheStreet Ratings' report card for this stock.


-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to
Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.