AIG For Now Remains Under Federal Oversight -- Update

By Ryan Tracy and Leslie Scism Features Dow Jones Newswires

American International Group Inc. will remain under federal supervision for now after U.S. officials discussed the firm's future at a private meeting Friday, according to people familiar with the matter and a Treasury Department statement.

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Discussions among regulators are expected to continue about the company, which was designated a systemically important financial institution in 2013. The SIFI label was created after the financial crisis that comes with stricter federal oversight.

Regulators review the designation for companies tagged with it every year. This year they have been considering whether to remove it for AIG, according to people familiar with the matter.

AIG declined to comment.

A Treasury Department statement said the Financial Stability Oversight Council of senior regulators discussed the designation of a financial firm, but didn't disclose a vote. The firm under discussion was AIG, people familiar with the matter said.

The AIG issue has become a battleground between President Donald Trump's appointees and holdovers from the Obama administration.

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Treasury Secretary Steven Mnuchin, a Trump appointee, chairs the council. He is one of only five Trump appointees among the group's 10 voting members. The rest were chosen by President Barack Obama and are still serving out their terms.

Rescinding AIG's SIFI designation would typically require a two-thirds vote of the council, or seven out of 10 votes. It isn't clear whether any Obama appointees are willing to join Trump appointees to rescind the SIFI tag. None commented on the matter when contacted Friday.

Analysts have said Roy Woodall, the council member with insurance expertise, may be sympathetic to AIG's argument that it has reshaped itself since the financial crisis. Federal Reserve Chairwoman Janet Yellen also "seemed open to the possibility" in a press conference Wednesday, said Ian Katz, analyst at Capital Alpha Partners, in a client note Thursday.

Ms. Yellen on Wednesday said the designation "is not meant to be a one-way street...firms may change their business models or just how they conduct their business, and we should welcome de-designation of firms."

Complicating matters, Trump and Obama appointees have been at odds in recent weeks over the procedures surrounding the AIG vote, according to people familiar with the matter.

Securities and Exchange Commission Chairman Jay Clayton has recused himself from the AIG discussions due to his prior work at the Sullivan & Cromwell law firm, which counts AIG as a significant client. That leaves an open question: If Mr. Clayton doesn't vote, are seven votes still required to rescind the SIFI designation? Or would a 6-3 vote suffice? Officials have been privately wrangling over the question, these people said.

Treasury officials at one point proposed changing the council's bylaws with the goal of allowing another SEC official to vote in Mr. Clayton's stead, but the matter was dropped after other council members objected, these people said.

The statement about Friday's meeting didn't indicate whether the council would meet again to discuss the issue.

Evercore ISI analysts said Friday they wouldn't view a "no-decision" outcome as a negative for AIG because the Treasury is separately reviewing the process for designating firms systemically important and a determination about AIG "may be driven" by that report.

Write to Ryan Tracy at ryan.tracy@wsj.com and Leslie Scism at leslie.scism@wsj.com

(END) Dow Jones Newswires

September 22, 2017 17:44 ET (21:44 GMT)