AIG to Shut Commercial, Consumer Divisions

AIG to Shut Commercial, Consumer Divisions

 
At the end of the US Financial Stability Oversight Council’s (FSOC) meeting held last Friday, there was no mention of a change in the “Systematically Important Financial Institution (SIFI)” status of global insurer American International Group (NYSE: AIG). This means that AIG will be under strict supervision of the regulatory watch dog. Still, for the reasons given below, we expect the stock of AIG to move upwards in the days ahead.

On Monday, following the failure to get a relief from strict supervision by the FSOC, AIG announced that it will undergo restructuring to rebuild its image and shed the SIFI label. All banks with more than $50 billion in assets are automatically classified as SIFI, where as FSOC has the power to label a non-banking financial institution such as the AIG as SIFI. An institution categorised as SIFI will be subject to stringent Fed oversight and capital requirements on the basis of the Dodd-Frank Act., a bill passed in the aftermath of the 2008 financial crisis.

AIG was bailed out by the US government, with a grant of $182 billion during the financial crisis. Since then, the company has sold dozens of its subsidiaries, including the operations in Asia and an aircraft leasing business. Recently, AIG sold a mortgage insurance unit. Still, it remains the largest commercial insurer in the US and Canada.

As per the plan, AIG operations will be split into three namely, life and retirement planning, general insurance, and a tech platform, while shutting down its consumer and commercial finance divisions.

The General Insurance business will be led by Peter Zaffino, tech platform will be led by Seraina Macia, and Life & Retirement will be led by Kevin Hogan. Following the changes, Rob Schimek, former CEO of AIG’s commercial business will leave the company by the end of October.

AIG is also planning to update its financial report and disclosures, after making the intended changes. The company will also alter incentive schemes such that it aligns with the new organizational structure. The restructuring plan is generally perceived to be good for the future of the company. Thus, we expect the stock to turn bullish in the short-term.

The stock has broken above the 50-period moving average. Furthermore, the accumulation indicator is making new highs. That reflects the prevailing bullishness. So, it would be prudent to take a long position in the stock.

AIG - Technical Analysis - 27th September 2017

A long position in the stock market can be imitated by purchasing a call option in the binary market. However, before investing in a call option, we wish to make sure that the contract is valid for a week and the strike price is about $61.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.


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