Over the past 24 hours, i have received half a dozen calls/messagesasking me what about AIG? Before I start that, let me point to a few of my posts on AIG:
- Break up AIG!
- Break Up AIG!
- A New CEO at AIG
- More on AIG
- All my comments during the last four years at RealMoney.
Let me say that it took this long for the price to fall below where it was when I left the firm in 1992. For many firms with significant slack assets, they could have resisted this fall in the stock price, but AIG could not.
Why not? It is a complex firm. Complex firms have a hard time splitting/understanding the results of their various business units. Management’s view of free cash flow is cloudy.
With AIG, the best thing that they can likely do is spin/sell off their US Life and P&C arms separately or together. Those units have a relatively easy to determine value. WIth the cash, AIG can focus on improiving the remaining units. If they can’t do that, AIG is heading for the scrap heap.
Call me a bear here. I have no idea how good the current management team will be, but so many are mezmerized by the past of AIG.
The question I have is….is now the time to buy AIG?(before the market opens on Monday) Is the stock so beat up that the steps that they announce on Monday will make the market happy enough that the stock will go up – at least a little. I would appreciate your feedback.
Bob, I’m not good at short run. Anything is possible, and it is likely that any sale or IPO of a division would be received well, at least in the short run… though the price would matter considerably. But Monday? I don’t see anything for Monday, but anything can happen in the short run.
That said, watch the rating agencies downgrade… they are lagging indicators of the move in the stock price.
Why is the global business model one of giant conglomerations? As an investor, I avoid them like the plague, but business in every country I see tends to converge on this model through consolidations (which, incidentally, end with too-big-to-fails).
It would make more sense for a holding company model in which acquisitions are made during tought times and those same acquisitions are spun off and IPOed during good times. The hitch here is the other part of the modern business paradigm–companies don’t like to have cash; thus, they have no options when credit conditions deteriorate, the best time to buy.
I used to work for AIG in their asset management division (I left three years ago) and I was shocked by lots of things at the company.
1) Managers down the chain mindlessly followed still more mindless growth goals set by senior management. It caused us to grow asset management products that couldn’t tolerate rapid growth.
2) Because of the legacy of Hank Greenberg there was a sense that if you questioned senior management you were being insubordinate. Also the tier of senior people under Greenberg were courtiers not intelligent managers.
3) Senior management didn’t understand and didn’t bother to understand what was happening in the weeds..
4) The company has a really bad shift-the-blame culture.
5) AIG doesn’t fire underperforming employees.
David, you used to work there, what are your thoughts on the culture at AIG?
As with most companies, AIG culture resembled its CEO, who had run it for a long time. AIG had a culture of fear, and while that can work for a while, it can’t work permanently.
When I find it, I’ll have to post a copy of a memo of the billion dollar loss at ALICO Japan from 1992 that got buried…. it was classic, and shaped my view of AIG. And, yes, part of it had to do with a guy who was not competent, and should have been let go much earlier.
Also, yes, shift the blame was alive and well when I worked there 1989-1992.