2012 Year in Review: AIG
For a company that was one of the uglier poster boys for the 2008 financial sector meltdown, AIG kept a relatively low profile in 2012. The company only made occasional headlines during the year, and these were small and not of yesteryear's screeching "Giant Insurer Needs a $180 Billion Taxpayer Bailout!" variety. Nearly all developments for AIG were positive, as it consistently posted higher than expected earnings and sold assets. The government, meanwhile, rapidly cut its shareholding several years after effectively nationalizing the company during the crisis years.
The ultimate insurance salesmen
Like too many financial companies that really should have been smarter, AIG dived too deeply into the derivatives mess during the pre-crisis years and was caught well short when the time came to cover the positions it had opened. Uncle Sam ultimately ponied up a staggering $182 billion or so to keep the company on life support, with the Treasury Department taking around 92% of the company in return. How's that for a pricey loan?
The government has little desire to own a private company, particularly one hobbled by that much dead weight, so it was desperate to sell its stake as quickly as possible. That chance came sooner than anybody had a right to expect when CEO Bob Benmosche took over the company. Before long, it starting posting a profit again,which helped mightily to lift its share price.
This allowed the government to recoup its investment and then some through stock sales. The biggest beneficiary was, rightfully, Treasury Department. It actually started in 2011 to sell most of that 92% it held, releasing $5.8 billion that year in a stock offering.
Those sales really gathered pace in 2012, though, with four sell-offs taking in something like $44 billion. The last of these was an divestment that ended up totaling more than $20 billion. As of this writing, Treasury's stake in the company has been cut to below 16%, a far better number than the 90%-plus that made bailout critics so unhappy. The sale of tranche No. 4 booked a healthy profit for the Feds, meanwhile.
And Treasury wasn't the only wing of the government benefiting from an AIG garage sale. Early in the year, the New York Fed auctioned off the remaining assets in Maiden Lane II, a specialty vehicle it used to park the less appetizing parts of the company. That previously unloved AIG detritus attracted serious bids from white-shoe financials like Goldman Sachs , Bank of America's Merrill Lynch, and Barclays unit Barclays Capital; when the gavel fell, the winner was Credit Suisse, which paid $7 billion for the package.
Meanwhile, AIG did the right thing by paying back the government. In addition to several asset divestments, the company was an active participant in several of those share offerings, spending $5 billion alone in the latest Treasury sale.
AIG has made quite a recovery since the dark years. Every reported quarter in 2012 saw the company post top and bottom lines that topped analyst expectations. 1Q's net came in at $3.2 billion -- excluding one-time items, that meant $1.71 per share, considerably higher than the $1.12 anticipated by the market. 2Q was a better beat, at $1.06 and $0.57, respectively. The company notched a three-peat the following quarter, putting up $1.00 and $0.85 in those numbers.
Granted, the firm has certain advantages -- at least some of those gains come from sales of the company's assets. In one big recent effort in this sphere, it put up a stake in an affiliated Asian company, confusingly named AIA Group Ltd., to raise up to $2 billion.
But that doesn't cloud the very real achievements of the company. Each of its three insurance divisions -- the recently rechristened property casualty (formerly known as Chartis), life and retirement (the onetime SunAmerica), and United Guaranty (the mortgage insurance unit) -- have been firmly in the black in terms of operating profit in the three quarters. Additionally, with one small exception (United Guaranty in 1Q), in those quarters, each division improved its bottom line markedly over the same time frame in 2011.
The year's good news took a turn for the bad with the damage and tragedy that followed in the wake of Hurricane Sandy. It's undoubtedly going to blast AIG's 4Q too. The company, like every other major insurer, has skin in the game as far as property and casualty underwriting in the region goes.
It's less exposed than some rivals, though -- for example, Liberty Mutual was responsible for around 9.7% of direct property and casualty premiums in the Northeast region in 2011, while AIG and Allstate , for example, stood at only 3.9% and 3.4%, respectively. Sandy's still going to negatively affect results, although at this point, it's hard to estimate by how much; estimates for total insured losses vary widely, from $7 billion to $20 billion.
That evil freak of nature aside, 2012 has to be considered a good year for AIG. The government, which was up until very recently almost the sole rightful occupant of the boardroom, is now a minority shareholder in the company and will likely soon melt away entirely. Profits are up, the company is solvent, and its business is back on track. This one-time ugly poster boy is looking a lot more handsome as the year draws to a close.
The article 2012 Year in Review: AIG originally appeared on Fool.com.Eric Volkman has no positions in the stocks mentioned above. The Motley Fool owns shares of American International Group and Bank of America and has the following options: long JAN 2014 $25.00 calls on American International Group. Motley Fool newsletter services recommend American International Group and Goldman Sachs Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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