American International Group Inc is planning to sell its savings and loan business as soon as a federal panel labels the insurance giant "too big to fail," its chief executive said on Monday.
But even without a banking business, AIG is now looking more aggressively at making and purchasing mortgages as investment vehicles, Chief Executive Officer Bob Benmosche said in a telephone interview from Tokyo.
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AIG, which received $182.5 billion in bailout money from U.S. taxpayers at the height of the financial crisis four years ago, has been working to repay the government and regain its credibility ever since. Although the U.S. government still owns more than 15 percent of the company, the bailout has been repaid in full and actually generated a profit since.
AIG is regulated by the Federal Reserve because it has a savings and loan business. But even without it, the insurer is likely to come under permanent Fed oversight anyway as a "systemically important financial institution," or SIFI. Those designations have not been made yet, but AIG has said all along it is certain to receive one.
Benmosche said of the S&L, "we are planning to close it down. It's a business that doesn't makes sense to be in."
He said he would wait to sell the unit so there would be no break in regulatory oversight. He declined to discuss how much the sale might fetch, but he said the business had less than $1 billion of assets.
Having the Fed oversee AIG's liquidity and capital structure is strategically important because it establishes credibility, said Benmosche, who was in Japan overseeing a rebranding effort.
Benmosche said he did not know when AIG would receive the SIFI label.
"We're exploring a sale, we're exploring turning it into a trust vehicle rather than a savings institution with deposits. We're looking at a whole bunch of options," he said.
AIG has spoken to banks as potential purchasers and hired lawyers, Benmosche said.
Even as it looks to sell off the bank, though, one place AIG is bulking up is in mortgages. The company's mortgage insurer, UGC, has become unexpectedly strong in recent years as competitors have faltered due to crisis-era losses.
But Benmosche said AIG would like to go even deeper than just insuring home loans.
"We are also now looking at ways we could become direct investors in mortgages," he said. "We are going to do more of our own direct lending, both commercially and residentially."
AIG's motivation is the same as for many insurers in this persistently low interest rate environment -- yield. With fixed income portfolios struggling, insurers are hungry for even a few extra basis points of relatively safe return.
Benmosche said "it makes a big deal" at the current low rates to get that little bit of extra yield by buying mortgages directly, which is why he said AIG is talking to big banks about buying their non-agency mortgage debt.
The CEO, credited with turning AIG around from a battered company in the midst of a fire sale of assets, has been active in the media, talking up AIG's prospects after a November 1 earnings report that some analysts found disappointing.
Shares are down nearly 10 percent since the earnings, with most of that coming after the company said it would ease up on buybacks in favor of using its capital to manage its debt load.
On Monday alone, the stock fell 1 percent to $31.85, nearing closing lows last seen three months ago.
One way AIG might manage that debt is with the sale of ILFC , its aircraft leasing business. The company filed for an IPO of ILFC in the fall of 2011, but progress has been stymied by weak markets. Benmosche said Monday the sale would have to wait until circumstances improved.
"The main thing is we feel we should try to get to a 51 percent sale such that we can deconsolidate the debt from AIG, so that's a target that we have, but we will have to see how it goes," he said. "We are looking for a major launch that gets us more than halfway there."
With the debt under control, and buybacks essentially completed, AIG has talked about the possibility of paying a dividend as soon as next year.
"There's several things we could be doing and we are still exploring all of those possibilities," Benmosche said.
(Reporting by Clare Baldwin, Writing by Ben Berkowitz; Editing by Grant McCool)