Thursday, May 27, 2010

Benmosche makes a big promise, but can AIG deliver?

"I'm confident you're going to get your money back, plus a profit." That was AIG CEO Robert Benmosche’s pledge to a Congressional Oversight Panel yesterday. This wasn’t the Benmosche who said last fall he was prepared to tell Congress to "stick it where the sun don't shine." But despite his conciliatory performance, afterwards panel chair Elizabeth Warren told the Wall Street Journal she was frustrated by the lack of detail to back up his projections. She started the hearing by calling AIG “a corporate Frankenstein, a conglomeration of banking and insurance and investment interests that defied regulatory oversight."

I’ve been very impressed with Benmosche’s ability to turn AIG around this year and I was also impressed yesterday that he was able to restrain himself during an inquisition by the people he once called “crazies.” He did get a bit testy at one point when asked about the testimony of Cliff Gallant, a KBW Inc. analyst who cut the stock to “underperform” last month because he thinks meeting U.S. obligations may wipe out common shareholders. Gallant is predicting AIG shares could be worth $6 within a year. Benmosche said of Gallant’s analysis, “You’ll have to see if he understands the company as well as I do,”

I appeared on Bloomberg TV to analyze yesterday’s hearing and told Mark Crumpton that I agree that Benmosche will be able to pay off AIG’s debt in full. The company has great prospects because it’s honed down a gigantic operation into two basic areas: Sun America, a life insurance business, and Chartis, the property & casualty operation, which made a great deal of the $1.45 billion in profits announced in the first quarter of this year. Benmosche is turning AIG into a smaller company with a great core business.

Once the government pulls out, a lot of great things will happen; foreign investments funds will move in along with other investors, and AIG will continue to make money, pay the government back, and grow the company into a reasonable size.
Benmosche will continue to face tough questions along the way, but it appears he now realizes he just can’t say whatever he thinks when it comes to Washington. The best thing for him, taxpayers, and AIG’s investors will be when the U.S. government is paid back and AIG can run its business with only normal regulatory supervision.

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