American International Group Inc (NYSE:AIG) Mulls Only Mortgage Spin-off

American International Group Inc (NYSE:AIG) is fighting activist investor demands for three-way split with a compromise formula. The insurance company has proposed to spin-off only its mortgage insurance business. However, many feel that the offer would be much lesser than what Carl Icahn and his group expects.


Mortgage business Falls-short

Currently, the mortgage insurance business segment accounts for 7.4% of the pre-tax income of 2015 fiscal. Revenue earned by this unit is roughly at $791 million in the nine months thus far.

American International Group Inc (NYSE:AIG) is expected to propose the partial spin-off formula on Tuesday.  The insurance company will release its strategic plan on the same day.

If the company opts for the partial spin-off formula, it will mean shareholders will get to own only limited units of shares. These would be of the mortgage business spin-off, while the rest would be retained by American International Group Inc (NYSE:AIG).

The company under CEO Hancock has been fighting Ichan’s call and proposed better cost-cutting and sales. It has also offered its Valic business for sale, along with life and annuity units – Sun America for financial agility.

Shedding SIFI

At the heart of the demand for a big three-way split of AIG by Icahn and others is the SIFI-tag. The insurance company is classified by the US regulatory bodies as a Systemically Important Financial Institution or SIFI. The tag which came into effect after the 2009-financial scams requires major financial institutions to hold higher capital reserve ratios, in comparison to smaller players in the same business segment.

Thus AIG too is required to maintain high capital reserves. This is a move that is opposed by activist investors. Thus they are pressurizing American International Group Inc (NYSE:AIG) to split the company and there by acquire greater agility. However, the CFO and others at AIG claim that such a move would not be necessary, even as the insurance company fights a legal battle to shed the SIFI tag.

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