AIG Book Value

[phil_Buffett]

interesting to see aig trades still under 1xbv.  if the grow the book value the next years the gap widens more. so i love it when the drop 6% like to day, so that i can buy a Little more.

 

When do you think aig reaches 1xbv or trades for a premium to bv?

 

i think 2015 it should trade for a premium to book  e.g. 1,1-1,2xbv

[racemize]

interesting to see aig trades still under 1xbv.  if the grow the book value the next years the gap widens more. so i love it when the drop 6% like to day, so that i can buy a Little more.

 

When do you think aig reaches 1xbv or trades for a premium to bv?

 

i think 2015 it should trade for a premium to book  e.g. 1,1-1,2xbv

 

At this point, it has to show some decent ROE and earnings--the market is pricing based on earnings power and not multiple of book, which basically means that CR needs to get down to 95% or below to get a premium to book (at least in my opinion). 

 

I still see upside here, but it is no longer the deal that it was--before (similar to BAC) the bet was that they could go from a underperforming/restructuring company to a mediocre company.  We are getting closer to mediocre--now we have to start betting that they can be better than mediocre to have a lot of upside.  That is certainly possible, but it will be difficult for them to have outstanding CRs given their size (perhaps I am wrong here, as I'm not an insurance expert, but it seems reasonable).

 

The bonus here (and this is true for BAC and LUK) is that they won't be paying much taxes, so earnings flow to book value at near pre-tax rates, although this is offset by the fact that the book value already includes DTAs, so one disappears while the other accrues.  In that respect, it is both a headwind and a tailwind!

 

All that said, I'd hope for book value to increase 6-8% a year and that we eventually get to book in a few years.  By 2018 that would be a book value around ~90, from current price of $48, which is ~13% per year.  Unless your assumptions are 1) better or 2) sooner, the expected returns are getting lower than they used to be.  The large margin of safety is starting to deteriorate.