Value Investing Club Bullish Write-up on AIG [UPDATED]

Value Investing Club Bullish Write-up on AIG [UPDATED]

UPDATE: Whitney received the below presentation from VIC.

Below is the partial text from the Presentation (we have obtained) of VIC on American International Group, Inc. (NYSE:AIG)

Full link to the presentation is shared at the end. 

Investment Overview

We recommend establishing a long position in the equity of AIG, which is in the later stages of its exit from government assistance and making progress in improving the profitability of its core insurance franchises. With the sale and equity buyback announced following Q1 2012 results,US government ownership fell to 61% of outstanding shares in May 2012. We estimate that by the end of the year AIG, through disposal of noncore assets, will generate $15 $ 20b in cash, which it can use to repurchase significant additional shares from the Treasury. At the current pace of share disposal by the government and repurchase by AIG, we believe AIG will be less than 50% owned by the government later this year, and completely free of Treasury ownership by end of 2013.

We believe that once Treasury ownership falls to 30%, this will remove a significant overhang on the share performance, as the market turns its attention to its derisked and gradually improving business model. We expect AIG to hit $40 by the end of this year. Share repurchases in connection with government divestitures will push AIG book value per share to $75 by the end of 2013, and we expect a $50 stock price in 2013 as improvements in AIG core insurance businesses translate to a higher ROE. If expectations are that ROEs will improve to 1012%, then valuations should approach book value in 2014.

AIG has made great strides in extracting itself from the several forms of financial assistance which it was forced to take during its $150b+ bailout in the fall of 2008. Specifically, in 2011 and early 2012 AIG repaid and terminated the $21b line of credit from the Federal Reserve and the $26b noncontrolling interests in certain special purpose vehicles holding stakes in former subsidiaries AIA and ALICO. This year AIG also fully paid down the $20b Maiden Lane II SPV which held distressed mortgage backed securities. Later this year the final portion of the $24b Maiden Lane III SPV which holds CDOs, is expected to be repaid. In the past year, the Treasury has sold 596 million of the 1,655 million shares it received in connection with the bailout (36% of its stake). Thus, as of May 2012 the only government assistance is comprised of an approximately $30b common equity stake and a liquidating interest in Maiden Lane III. This represents significant progress in repaying the $150b+ bailout in 2008, and within the next year, AIG should be completely free of US government assistance or ownership. In May 2012, the GAO reported that the government expects to make over $15b profit on its bailout of AIG.

Link To Full PDF: AIG-Value Investors Club-5-15-12


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