American International Group: Financial Loser

NEW YORK ( TheStreet) -- American International Group ( AIG) was the loser among the largest U.S. financial names on Monday, with shares declining over 2% to close at $33.36.

The broad indexes ended with slight gains, as shares of Hewlett-Packard ( HPQ) rose 3% to close at $14.16, amid rumors that activist investor Carl Icahn was building a position in the company's shares.

HP on Nov. 20 shocked investors by announcing a fiscal fourth-quarter net loss of $6.9 billion, or $3.49 a share which included an $8.8 billion write-down of goodwill, related to its purchase of Autonomy in August 2011 for $11 billion. The Autonomy purchase was the centerpiece of former H-P CEO Leo Apotheker's decision to transform the company from being primarily a hardware maker to becoming a software and consulting firm, the way International Business Machines ( IBM) did.

While there's no telling what sort of strategy Icahn might demand of Hewlett-Packard, Richard St. recently wrote that the IBM model might not be such a bad idea.

Investors on Monday, were, of course, continuing to wait for President Obama and the Republican leadership of the House of Representatives to move forward with a budget deal to avert the Fiscal Cliff. Speaker of the House John Boehner (R-Ohio) had nothing to say about his meeting with President Obama, while the President in Detroit that he would not compromise on his insistence for a tax rate increase for couples earning more than $250,000 a year.

Sandy, a Sale and Another Sale

American International Group late on Friday announced that its "preliminary estimate" of losses from Hurricane Sandy would be $2.0 billion, net of reinsurance, or $1.3 billion after taxes. The company also said it expected to contribute $1 billion in capital to its AIG Property Casualty unit, after the unit had paid $2.4 billion in dividends to the holding company through the first three quarters of 2012.

AIG also said on Friday that the P&C unit had $49.6 billion in capital and that the parent company had total equity of $102.4 billion.

AIG on Monday announced a deal to sell "up to a 90% stake in International Lease Finance Corporation (ILFC), a non-core asset," to a group of investors led by Weng Xianding, the chairman of New China Trust Co. Ltd. for roughly $4.75 billion.

The transaction values ILFC at $5.28 billion. AIG said that it would "retain at least a 10% ownership stake in ILFC, allowing it to continue to participate in the growth of ILFC's unique franchise, including the benefits that the investor group will bring to the company."

AIG also said that "when the transaction meets the criteria for "held for sale" accounting treatment, AIG expects to record a non-operating loss of approximately US$4.4 billion, which includes a non-cash charge of approximately $1.8 billion associated with the utilization of tax net operating loss carry forwards from this transaction."

Deutsche Bank analyst Joshua Shanker rates AIG a "Buy," and on Monday lowered his price target for the shares by a dollar to $41, while estimating a fourth-quarter loss of 16 cents a share. Shanker lowered his 2012 EPS estimate to $3.77 from $4.10, while lowering his 2013 EPS estimate by a nickel to $3.45.

The analyst said that the company's exposure to Sandy was "higher than we would expect," but that the $5.28 billion valuation for ILFC "seems perhaps above expectations," and that "previously, it was uncertain as to whether an ILFC sale would actually occur."

Shanker said that "the sale of ILFC simplifies the AIG story and is another example of management's success at implementing its plan." The analyst also saw a silver lining in the company's loss estimate, calling it "outsized" relative to peers, and saying that "a lack of gross loss detail could mean that AIG is reserving conservatively by reserving up to its retention, given the uncertainty still inherent from the event, and may result in favorable development in the future."

The U.S. Treasury late on Monday announced that it would be selling its remaining stake of 234,169,156 AIG common shares, although the government would continue to hold warrants to purchase common shares that were issued as part of the company's government bailout in 2008 and 2009.

AIG's shares have returned 44% year-to-date. The shares trade for 9.5 times the consensus 2013 EPS estimate of $3.52, among analysts polled by Thomson Reuters.

AIG Chart AIG data by YCharts

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


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

>Contact by Email.

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.

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