PlanMaestro

So it looks like celebration and optimism is allowed in this forum! Well, I will continue with my paranoia. One short question. Does anyone know of a forum for employees of AIG, Bank of America or Citigroup?

If this follows anywhere near the AMEX and GEICO playbook ...

I am reading Naked Capitalism and Zero Hedge and it is making feel bad about cheering. I cannot do this but I did buy a little more warrants the past few days.

Are celebrations accepted in this rational forum?

Several BAC settlements today, is anyone taking count and what is remaining?

And ML II was riskier than ML III. This was the facility that had the subprime. ML III is actually on track to make a nice profit for both the Treasury and AIG

What a story.

Several good points, +2 then?

Thomas Gallagher - Credit Suisse: Got it. Okay. Then can you talk a little bit, I guess this should be for David, can you talk a bit about your overall capital position today, I see you have north of $15 billion of liquidity resources at the holding company, but can you talk a bit about aside from the stakes in AIA and ILFC, which I realize are – at least I think about them as residual asset values that could be monetized into capital, but as it relates to capital levels that the insurance companies – is there any excess? I guess the other side question I had to that is the $11.6 billion of cash in short-term at the holding company, there is a footnote in your Q that said $8.7 billion in reverse repos is used to reduced unsecured exposures. I'm just not sure what that means, if you could elaborate? Robert H. Benmosche - President and CEO, AIG: Sure, I'll cover parts of it and I'll ask Brian Schreiber, our Treasurer to comment on your last part there with respect to the reverse repos and the strategy behind that and the use of those. How we think about the capital management? You're right, we grew our cash and short-term and financial resource of the holding company to just north of $15 billion in the quarter. Again, we've renewed the bank facility, had a terrific stable of banks participating. We were very pleased with that participation. We also announced that we put in place an additional contingent capital facility, again building up contingent capital and contingent resources in order to again allow us the greatest degree of financial flexibility. I think we've talked quite a bit about historically the capital maintenance agreements that we put in place with all of our operating companies. Those agreements, I would say, continue to operate as designed, that the capital flows are coming to the holding company in accordance with what our expectations were with those capital levels. We don't report or haven't reported yet the RBC levels of the companies, but suffice it to say, our domestic life retirement savings companies remained very strong and in line with where they were at year-end, which was upwards of 500% RBC. The capital maintenance agreements levels were in the 350% range, and would expect Chartis likewise to be at or above its capital maintenance agreement threshold. So again, the underlying capital positions of our operating companies remains very strong . Again, I won't quantify a 'excess capital' that you can get a feel for, for that where we are there. Brian, you want to comment on the short-term investments and the use of the reverse repos? Brian Schreiber - EVP, Treasury & Capital Markets: Sure. A key component of our capital and liquidity plan has been to reduce contingent liquidity risk at AIG, and as you know, AIG in the past had issued debt in foreign currencies and swapped that debt back to dollars. That exposed us to contingent liquidity risk from a strengthening dollar. We have net assets over a long capital in many of the currencies in which we've issued the debt. So, we've been able to unwind the swaps, eliminate the contingent liquidity risk, and effectively invest short-term in those currencies to (defies) that debt. So, we are economically hedged, and we've eliminated the contingent liquidity risk. We've chosen to go in reverse repos because it offers the best sort of risk-adjusted returns for the Company from a short-term investment standpoint. So, I hope that addresses your question. Thomas Gallagher - Credit Suisse: Yeah, it does; just the follow-up, Brian. So should I be thinking about $8.7 billion still available fully utilizable by your Holdco, or is there some level of – are those funds encumbered in some way shape or perform? Like, I just want to understand how to think about – I heard the technical explanation, but I just want to know practically speaking, are those funds there for you, or is there some level of that those are encumbered? Brian Schreiber - EVP, Treasury & Capital Markets: The cash apparent is not encumbered. It is a fungible asset that can be utilized how the parent company sees fit.

If you ask me, I am more skeptical of his non financials. The financials will work fine with or without Euro.

We’re long-term investors, so let’s take this to an illogical extreme. Everyone leaves, I’m the last one left as a shareholder. And I end up with positions that are cheap, with billions of dollars of tax-deferred assets, and a great future. What I am trying to say is that for the long-term shareholder, the amount of redemptions should not matter. Could it potentially cause a lowering of price on a short-term basis? Yes. Do I think it has negatively affected short-term performance? No. I mean, there's a reason why we had $3 billion of cash that everyone was complaining about, and we utilized that cash for redemptions. We’ve had to take other actions, but we have a more focused portfolio, because of that. So it has been to the long-term good of those of our shareholders who are still here. I still have to prove it, but the next couple of years we’ll know. Amen.

AIG's Man in the 'Risk' Trenches http://online.wsj.com/article/SB10001424053111904491704576574972537237478.html "Peter is an astute evaluator of risk…and he figures things out very quickly," said Ajit Jain, who heads Berkshire Hathaway Inc.'s reinsurance business and has known Mr. Hancock socially and professionally for a decade. "He will recognize faster those things the insurance industry does poorly and be in a better position to find untapped potential." If Mr. Hancock succeeds, he could be a shoo-in to become AIG's next chief executive when CEO Robert Benmosche retires, likely in 2012 or 2013, according to people familiar with AIG's management succession plan. Mr. Hancock "has been given an opportunity to fix the business and to potentially inherit the throne," said Jim Millstein, the Treasury Department's former chief restructuring officer who now runs Millstein & Co., a financial advisory firm.

WSJ: AIG Shows It Still Has Price Power http://online.wsj.com/article/SB10001424052970203413304577084451422875314.html "We started to assert our leadership position, which we traditionally had in terms of price-setting, and you can almost date it to the moment we repaid the Fed," he said. "When we started to ask for rate [increases], there was a lot of relief from the industry that finally we're back driving the bus in terms of getting a proper return on risk." Chartis, which sells property-casualty coverage in roughly 90 countries, is now one of two major units at AIG after the company restructured and repaid its bailout. The other, SunAmerica, sells life insurance and retirement products in the US In the years before the financial crisis, AIG's property-casualty unit "had a lot of influence as to where the market went," said Paul Newsome, an insurance analyst with Sandler O'Neill + Partners LP. "It's declined quite a bit since their financial troubles. I don't think they're able to drive pricing like they did in the past, but even in their diminished capacity, they're a formidable part of the market." [...] Mr. Hancock said the company had increased commercial rates 4.6% in the US overall, with property-insurance prices rising 8.8%. The company also is passing along more risk to reinsurers in the US to shrink its exposure to large losses from catastrophes, or "cats," he said. "For the most part, we've used too much reinsurance for our foreign operations and underutilized reinsurance for our property-cat exposure here," Mr. Hancock said. "So we are pulling back our capacity in the property-cat market here in the US because we don't think we are getting enough rate even with an 8.8% increase year on year." That effort is ongoing, Mr. Hancock said. "Until the pricing environment improves, the US is going to be a shrinking part of our business," he said. There have been indications of at least a slight industrywide pricing turn in recent days. MarketScout, a Dallas-based insurance exchange, said its data show commercial insurance rates up 1% in November, the first time its market barometer has shown an increase in nearly seven years. Insurance broker Marsh Inc. said Friday that commercial property-insurance prices had increased 1.7% so far in the fourth quarter.

Great links, looks like for ML3 the collateral and the profit split is better for AIG. http://www.aigcorporate.com/GIinAIG/whataigowes/Govt_Support_110211.pdf The Treasury also has $9.3 billion in preferred interests collateralized by the $13 billion AIA share owned by AIG. All indicates that the Treasury will get out of this with its principal, interests and a profit.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/insurance/8464624/AIG-offloads-3.5bn-asbestos-risk-to-Warren-Buffetts-Berkshire-Hathaway.html The US insurance group, which received $182bn (£111bn) in government bail-out funds at the height of the financial crisis, took a charge of more than $4bn in the fourth quarter because asbestos claims in its Chartis general insurance business were higher than it expected. AIG will now pay Berkshire Hathaway $1.65bn to take on its remaining risk in exchange for re-insurance protection worth up to $3.5bn. Any further exposure beyond that limit would be absorbed by AIG.

http://online.wsj.com/article/SB10001424052748703530504576165073748969558.html Chartis's U.S. operation set aside $3.95 billion to cover its newly increased estimate of potential claims on policies it sold prior to 2010. But catastrophe claims and the decline in premium revenue also helped push the U.S. business to a $4.96 billion underwriting loss. Chartis's overseas operations, meanwhile, said the value of policies sold in 2010 rose 17%. But that was due entirely to an acquisition and the beneficial effects of foreign-exchange rates. Without them, written premiums would have been down slightly. The result was hurt in part by Chartis International's decision to exit from a credit-card indemnification program that "did not meet certain profitability targets," according to a regulatory filing Thursday. Even with the newly acquired operation, the international business had an underwriting loss of $498 million last year. That included a reserve charge of $332 million. AIG isn't alone in facing trouble in its property-casualty operation. Many insurance customers have cut back on how much coverage they buy since the financial crisis struck in 2008, and the price of commercial insurance has fallen substantially in the U.S. in recent years. AIG's annual report said 2011 will bring more of the "weak growth environment" in most developed countries it operates in, and the company said it expects continued weakness in prices of U.S. commercial insurance. In addition, the company already expects "significant claims" from floods that submerged large swaths of Australia in the first weeks of this year. Still, while other insurers have also complained about the poor pricing environment, AIG is one of the only large property-casualty insurers that has added to reserves. Travelers Cos. and Chubb Corp. have reduced their estimate of the cost of claims, while AIG has pumped billions of dollars into Chartis to bolster the unit's capital position over the past two years. But now that the U.S. has ended active financial aid to AIG, the parent company's ability to support the business could be more limited. If Chartis needs to raise significantly more capital in the future, AIG may have to raise funds from the markets. In raising its loss reserves, which are estimates of future liabilities, AIG is addressing concerns raised by analysts and potential investors about the true profitability of its insurance businesses. The company is also trying to strengthen its balance sheet as well as fix issues that predate the government's bailout of the company and that engendered distrust among the investment community. New disclosures in the company's annual report on Thursday provided more information about the company's latest reserve charge and may placate some potential investors. The company offered details on new, stricter actuarial assumptions that caused it to add to asbestos, workers' compensation and so-called excess casualty reserves. For example, the company explained that it usually uses its claims experience for the past five years to help predict future excess casualty claims, but as losses increased in the second half of 2010, Chartis decided to limit the analysis to the three most recent years—which had been more costly. That drove up the estimate of future claims and caused the company to add $620 million in reserves for claims costs expected from 2007 and later.

Excellent article on how commercial and investment banks are changing http://nymag.com/news/features/wall-street-2012-2/index1.html When you hear all the evils of regulation, specifically Dodd-Frank and Volcker, remember this line from Dimon: And how this is becoming a much simpler business: And this line from Volcker And how finally Wall Street CEOs are calling out the compensation bluff And your next thought should be ... are commercial banks really a black box today? Check their level III assets and what is included in those derivatives. And as Parsad likes to say, there is no other banking industry in the world more enticing to invest today than the American banking industry

Ups, sorry! At least I did not mention the unwind of FP www.aigcorporate.com/restructuring/AIGFP.pdf

Taking advantage of the opportunity, "FATAL RISK" is an excellent book on the rise and downfall of AIG. Great read.

* Chartis + SunAmerica historic earnings per year: $10B+ * AIA 30% share: $13B * ILFC: $7B+ * Deferred tax assets not in the books: $20B+ * Maiden Lane II and III: a nice possible extra, just watch what AIG bid for US Government share * With a willing seller of its shares below book: the US government * While reducing risk: deal with Buffett to get asbestos out of the books, large one-time build up of reserves at Chartis * And buying back shares well below book: authorized by the US government (!) * And the TARP warrants are cheap even using Black and Scholes Probably should be in the watchlist.

That is the core of the issue: Berkowitz is managing Fairholme as an owner businessman while Yachtman is more concerned about the mutual fund crowd perceptions. Yachtman is trying to find a way to buy the cheap financials without completely ignoring their perceptions as Berkowitz. As an investor of my own money, I think there is more to learn from Berkowitz. But when I talk to OPM managers they tend to completely disregard financials just to avoid a battle with their investor base (and they rationalize it saying that this is a group of smart and rational people). So I have to give it to Yachtman that at least is finding a crooked middle way, that he will deny until the end of times, to buy large cap financials that are not only cheap but safe. The client base does not believe the second part so he is giving these clients what they want but nudging them a little.

Yachtman made contortions to explain himself at Consuelo Mack a couple of days ago: several small positions over several banks (even Bank of America, wow). That's after saying things like this before: “With a bank you create assets with a stroke of a pen. You’ve got a black box.” You have to give it to him. He seems straight in the camp of changing his mind when things change (or they become cheap).

CIT was cheap ($43 TBV per share) and they are strong in one of the few lending sectors that is growing at a good pace (middle market C&I). They have also been increasing their deposit funding base and are a strong candidate to be acquired by a deposit franchise. I was much more critical of his investment banking buys (Goldman, Morgan Stanley, Jefferies) with their short term funding and CAT risk. And they were not cheaper than BAC, C or CIT. But he got out of GS and MS in the latest report.

Peace