I think Berkowitz is still clearing his warrant position. They are lagging on high volume. It might take him months to get out completely. By my math the warrants should be selling north of $28, so they appear about $3 undervalued. Berkowitz is known for being patient. But that is a luxury he can no longer afford, given his recent underperformance.
Kowabunga. Thanks. I've had a busy day and missed the news. I'll have to catch up this evening.
Is Carl trying to oust Peter? That's news to me. If Peter is willing to do his bidding, I think Carl is happy to leave him in charge. His P&C record leaves a lot to be desired, but Peter is still the guy best positioned to move the company forward- regardless of what that means.
Add to that frustration the fact that Hancock was the previous P&C guy. It's hard to make excuses, when the head of the company was the reason for much of the legacy problem.
The other analysts have downgraded though. I tend to think of these guys as having a herd mentality. It's interesting to see when they diverge. Given that they are looking at the next 12 months, I would interpret these ratings as a vote on how long it will take AIG to get traction. They can't disagree that much on on the 3-5 year horizon, but over twelve months, there is plenty of honest room to second guess. Piper seems to think AIG will get it together by then. The other analysts have gotten burned and want to see the results first.
He's still in pretty deep. I just think he has to hedge and diversify a bit. For better or worse, we don't. I'm in much deeper than Bruce even. If I'm wrong? Ouch!
Not bullish, but it makes sense. He's been into AIG since the meltdown and suffered subpar results ever since. I'm sure he still believes in AIG, but can't afford to be overweight in it any longer. I have no idea what he sees in Sears Canada, though I do know he likes real estate. I'm too wary of retail to follow him in on that one. You get burned on retail if you don't shop the stores yourself.
He can't make something happen that isn't there. But it's nice to know somebody is watching to make sure management acts in the shareholders interests. That's not magic, just sound business. I suspect Carl will have to accept Peter's point of view on the matter. But Carl is going to hold Peter to task. There will be no room for more excuses.
Food for thought. I lack that insider insight, but am hoping the push to "big data" will help them get a grip on who the rainmakers are and where they're making money. Studies seem to show we overestimate change in the short run (1 year), but underestimate change over the longer term (3+ years). AIG has a good franchise. Maybe Peter can find a way to make that profitable. At these prices, they don't have to climb to the top. Anything better than last quarters' "pathetic" should yield an acceptable result. Low expectations is one key to happiness.
Now we're on the same page. I would follow up with one question however. AIG has been blaming legacy policies for their poor combined ratios. How long should investors expect to wait for that to work through? At one point will it be reasonable to hold management accountable for catching up to their peer group?
Yours is a repost from a previous thread. I'll respond in kind. Loss reserves seem to affect WHEN losses or gains are booked, but not HOW MUCH- at least not over the long term. More conservative reserving would not correct poor underwriting pricing. Correct me if I'm wrong. Under-reserving seems to indicate a poor understanding of the underlying risk exposure. That's a problem.
You're asking the wrong guy. After having been at the "downsized" end of that process, I can tell you it's an imperfect science. It's sort of like trimming a steak. At first, it's easy to lop off some fat, but the more fat you try to trim, the more meat you're going to cut with it. The people who don't pull their weight, generally have the gift of office politics and hiding their deficiencies. You'd think management could see through that, but you'd be surprised how often that's not the case. It's been my experience, if a company cut itself down to two people, one of those survivors would still be a slacker. We can only hope that "collateral damage" will be limited. The fact that it's difficult is no excuse for doing nothing.
I don't see a problem with reserving to "best estimate". The concept is sound. The problem is that their estimates have been lousy, resulting in a disconnect between cause (the type of business they write) and effect (how much and when then make money). This reserve issue appears to be the basis of last month's downgrade based on concerns over "quality of earnings".
I just do a linear amortization of the time premium. Anything less than than $2 per year time value is, in my opinion, underpricing the warrants. We're $3 too cheap,, relative to the common, by that measure.
By my feeble math, the warrants are undervalued by more than $3. Again, when investors realize that the warrants are doubly adjusted, the time value premium should recover. Just to illustrate the issue, if the strike were adjusted by $4.5 (10%), each warrant would also convert to 1.1 shares (approximately), maintaining the total conversion cost at $45. What that means is that any further increase in the dividend pays double to the warrant holders- embedded in the value of the warrants.
Back in the day, when I was in oil, I too survived several rounds of layoffs and reorganizations- not to mention a buyout/merger. It's depressing, even if you're not the one getting the pink slip. You start to know how combat veterans feel, losing their friends. So I don't mean to sound cavalier about layoffs. And yet, by all objective measures, AIG has been too slow to reform. Even based on their own projections (which they have repeatedly failed to meet), they'd take several more years to be only somewhat behind their peers in profitability- apparently in perpetuity. Really? Profits are not just about greed. They are a company's margin of safety and survival. If AIG cannot make a healthy profit, the careers of their associates are in jeopardy regardless. At least by addressing the issue sooner, AIG stands a chance of saving more of those careers in the long run. If this were just about patience, I'd be all in. But AIG has too much of a history of failing to keep their promises. I'm no fan of Carl's, but he's only the messenger.
Can't wrap my head around how much the warrants are lagging the common. We should have at least a $2 per year time value- more in times of uncertainty and volatility. When investors realize the warrants get a double adjustment- both price AND conversion number- after Dec. 2nd, we'll see if the warrants get the respect they deserve.
Unlikely. Mortgage maybe, but the PC and Life are harder to split, and 5 of the 15 $B in DTAs might be in jeopardy. Selling pieces of those two might be doable, but that surgery will certainly be delicate and protracted. No instant gratification here.
I'd be OK with hedge funds if they weren't so stupidly expensive. Only a few lucky geniuses make enough to pay their fees over the long haul. I find it extremely ironic that an insurance company doesn't understand the basic math of probability. Study after study prove hedge funds, as a class, are a fool's game. If AIG thinks their "expert" is smarter than the others', they're dumber than I thought, and too dumb to be running a SiFi insurance company.
Thanks for setting me straight. Perhaps they plan on replacing layers of oversight with computer "big data" algorithms. If they are writing bad policies, they can do no worse. I'm sympathetic and share your concerns, but what they're doing now is obviously not working.