AIG no longer ‘too big to fail’
• US council votes to release insurer from label of systemically important financial institution after CEO succeeds in derisking project
American International Group is no longer too big to fail. That was the ruling on Friday from the Financial Stability Oversight Council, which said AIG, after its 2008 collapse reverberated across the US, was no longer a systemically important financial institution.
American International Group (AIG) is no longer too big to fail.
That was the ruling on Friday from the Financial Stability Oversight Council, which said AIG, whose 2008 collapse reverberated across the US, was no longer a systemically important financial institution.
“This action demonstrates our commitment to act decisively to remove any designation if a company does not pose a threat to financial stability,” Treasury Secretary Steven Mnuchin, a member of the council, said in a statement.
The council voted 6-3 to make the change, with Federal Reserve chairwoman Janet Yellen supporting it alongside several regulators appointed by President Donald Trump.
The decision frees the New York-based insurer from the threat of tighter capital rules. The firm was at the centre of the financial crisis, when its investing blunders led to a government bail-out of $182.3bn.
AIG repaid the rescue, turning away from its infamous derivatives portfolio, which contributed to the carnage.
The ruling for AIG was a win for activist investor Carl Icahn, who has pushed for ending the designation since taking a stake in the insurer two years ago, and for Brian Duperreault, who took over as CEO in May.
Icahn announced his departure as a special regulatory adviser to Trump in August after questions were raised about potential conflicts of interest.
“The council’s decision reflects the substantial and successful derisking that AIG’s employees have achieved since 2008,” Duperreault said on Friday. “The company is committed to continued vigilant risk management and to working closely with our numerous regulators to enable a strong AIG to continue to serve our clients,” Duperreault said.
AIG shares, which rose about 0.7% to $61.39 Friday in New York, jumped an additional 48c in extended trading after the statement was released. Bloomberg reported late on Thursday that the council would remove the label, according to people familiar with the plan. The shares are down about 6% in 2017.
AIG had privately told the council it was not a systemically important financial institution, partly because the unit with soured investments was not an insurance entity, people familiar with the discussions said.
RESHAPING COMPANY
Duperreault has been working to reshape the company and said in August that AIG did not deserve the systemically important financial institution tag after years of slimming down.
The stance was a departure from that of former CEO Peter Hancock, who had said shedding the designation was not among his top 10 priorities.
Duperreault’s view aligned with Icahn’s, who called the regulation a “tax on size”. In 2015, Icahn urged Hancock to break up the company, arguing that AIG’s businesses would be more valuable if they were not part of a too-big-to-fail insurer.
AIG was named a systemically important financial institution in 2013, which brought more scrutiny and compliance requirements.