November 5, 2007 / 9:00 PM / 10 years ago

Analysts skeptical Greenberg can put AIG into play

<p>Former American International Group Inc. chief executive Maurice "Hank" Greenberg lobbied for renewal of the U.S. Terrorism Risk Insurance Act in a speech at a conference in New York, August 31, 2005. Analysts were skeptical on Monday about Greenberg's ability to engineer a buyout or break-up of AIG, despite his 12 percent stake in the world's largest insurer. REUTERS/Chip East</p>

NEW YORK (Reuters) - Analysts were skeptical on Monday about Maurice “Hank” Greenberg’s ability to engineer a buyout or break-up of American International Group Inc (AIG.N), despite the former AIG chief executive’s 12 percent stake in the world’s largest insurer.

Late on Friday, Greenberg and a group of companies he controls said in a federal filing they were considering “strategic alternatives” for the company.

Through a spokesman Greenberg declined to comment further both on Friday and Monday. But investors initially reacted as if the insurer were in play on Friday, sending its shares 4.4 percent higher to $61.77 in aftermarket trading.

AIG’s stock cooled on Monday, rising only 1.1 percent, or 65 cents, to $59.77 in late New York Stock Exchange trading. It remains within sight of its 52-week low of $56.37.

“We’re waiting for him to say something substantive, something specific,” Morningstar analyst Matt Nellans said.

No one discounts the 82-year-old Greenberg, despite his setbacks. AIG’s board ousted Greenberg in early 2005 after a scandal involving alleged sham contracts, and he faces civil fraud charges brought by former Attorney General Eliot Spitzer, who is now New York state governor. In 2006, AIG paid $1.64 billion in fines and restitution to settle with regulators.

But Greenberg, who has never acknowledged any wrongdoing, still controls about 12 percent of AIG through his private companies and personal wealth. He is also actively investing in China and has extensive links with state-owned entities and government officials there.

AIG spokesman Chris Winans declined to comment.

Analysts say they are watching for further filings that might show Greenberg is linking up with Chinese companies to bid for AIG. But given its $152 billion market capitalization, they think he probably has another objective in mind.

INITIAL TARGET

“We believe the initial target may be (AIG‘s) board,” said Goldman Sachs insurance analyst Thomas Cholnoky in a report.

Greenberg may be seeking to oust the management and board members who replaced him, analysts said, change their direction, or simply force them to sell off pieces of the company.

“If he doesn’t get a seat at the table, he does want to influence where some of the bets are placed,” Donald Light, an analyst with Celent LLC, said in a written comment.

But if Greenberg wants to play a bigger role in the New York-based insurer, his recent stock activity has shown exactly the opposite.

Analysts said one reason AIG’s shares have underperformed other insurance stocks, despite reporting better than average earnings in the past few quarters, is because Greenberg has steadily sold his AIG holdings whenever the shares rose.

SEC filings show two of his companies, Starr International and C.V. Starr & Co, have sold more than 67 million AIG shares in the last year, or about 22 percent of their holdings.

Greenberg said in February, however, that he intended to keep most of his AIG shares “for some time.”

A key to whether AIG can keep Greenberg at bay will be its third-quarter earnings, due out after the market close on Wednesday.

AIG shares, down from a $72.97 high in May, have tumbled in recent weeks as investors fear it will join investment banks in making a big write-down on subprime-mortgage-related securities.

“If AIG comes out with a big write-off it will make investors yearn for the day when Hank Greenberg was in charge,” said Ron Shelp, author of “Fallen Giant,” a study of Greenberg and AIG, in an interview.

Thus far, however, analysts think AIG will take a relatively small write-off on subprime, ranging from 35 cents per share to about a dollar.

“(That‘s) not material to AIG’s annual earnings per share,” Lehman Brothers analyst Jay Gelb said in a report, “although it does represent headline risk.”

Reporting by Ed Leefeldt, editing by Braden Reddall

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