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American International Group (NYSE:AIG), in naming a new CEO who has favored market-leading positions and presided over divestitures, has put previously ruled-out divestitures back on the table, a well-informed source told mergermarket.
Units of the world’s largest insurer, such as airplane leasing, capital markets, and consumer finance, which have been flagged as potential divestiture candidates in the past, are most likely now divestiture candidates, said Mike G. Paisan, senior analyst for Stifel Nicholaus & Company.
The above-mentioned source said those segments, including the credit derivatives business, which has been a trouble spot for AIG, are to get serious divestiture consideration under the new management.
In whole or in part, these segments benefit from relatively higher credit ratings than AIG formerly had, said the source and the analyst, both noting that the airline leasing business greatly depends on the cost of borrowing.
The source said that another non-insurance business that will likely be examined for divestiture is AIG’s asset management business, though there exists synergies with AIG’s insurance business, including its high net worth insurance business.
AIG’s new CEO, Robert Willumstad, who will retain his title as chairman of the board, favored market leading positions and participated in cost-cutting and divestitures while a top executive at Citigroup, said the source
“He will try to strengthen and focus the company in its core insurance business, though he is not strictly an insurance guy,” said the source.
The source pointed to a 2004 divestiture by CitiCapital, a subsidiary of Citigroup, of its transportation finance business, and a 2003 divestiture by Citigroup of Citicorp Electronic Financial Services, both in which Willumstad played a key role, as examples of the type of divestitures to now look for at AIG.
When the transportation finance business was sold, lack of cross-selling opportunities was cited as a reason, and when electronic financial services business was sold, lack of a market leading position was a reason, said the source.
Two industry sources said that AIG’s aircraft leasing division, International Lease Finance, would be highly sought-after, could re-allocate capital for AIG, and presents little to no synergies with AIG’s insurance business.
International Lease Finance, based in Los Angeles, had operating income of USD 272m during this year’s first quarter, a nearly 41% increase, according to regulatory filings, and has had favorable margins, said the source familiar with the company.
The industry sources said that AIG’s asset management division, which showed an 80% drop in operating income in this year’s first quarter, though nonetheless still had operating income of approximately USD 154m, would also be marketable, given that buyers have an appetite for acquisitions in that segment.
AIG”s consumer finance division, which had an approximately 78% drop in income in this year’s first quarter, according to regulatory documents, showed USD 11m in operating income, is a harder sell, said the sources.
The capital markets division reported a USD 8.85bn operating loss for this year’s first quarter, and overall AIG reported a first quarter loss of just over USD 7.8bn, according to regulatory documents.
Willumstad, who has been on AIG’s board of directors since 2006 after leaving as president and COO of Citigroup, replaces Martin Sullivan, who started working at AIG when he was 17-years-old and served as CEO since 2005.
Willumstad said in a conference call today that he planned to have a turn-around plan for AIG by no later than September.
AIG, with more than USD 1tn in assets, has a market capitalization is USD 84.75bn.
Stephen Bollenbach, an AIG director supported by some dissident shareholders, will be named AIG lead director, according to the company.
Fitch has downgraded AIG’s Issuer Default Rating and senior debt ratings to AA- from AA, as well as its other holding company and subsidiary debt rating, according to regulatory documents.
AIG declined comment.
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