American International Group is reducing its stock buybacks to bulk up its capital as part of its efforts to transition to federal oversight as a systemically important financial institution (SIFI), president and CEO Robert Benmosche acknowledged today.
As part of that effort, AIG is supporting legislation proposed last week in both the House and Senate that would allow the Federal oversight to use current insurance accounting tools instead of "bank-centric metrics," Benmosche said.
Benmosche's comments were made in response to a question by Randy Binner, a stock analyst at FBR Capital Markets in Arlington, Va., during AIG's quarterly call with analysts following the release of its first quarter earnings last night.
It came against the background of disclosure by the Federal Reserve Board last week that AIG and Prudential Financial, both of whom have been designated as SIFIs, and therefore subject to federal oversight, will receive such oversight through a "cross-disciplinary special unit" called the Large Institution Supervision Coordinating Committee (LISCC).
According to the Fed statement, AIG and Prudential are on a list of 15 U.S. and foreign financial firms that "may pose elevated risks to U.S. financial stability" and so will receive additional supervision.
The statement said the LISCC is a Federal Reserve System-wide committee, chaired by the director of the Fed's Division of Banking Supervision and Regulation, which is tasked with overseeing the supervision of the largest, most systemically important financial institutions in the United States.
The LISCC is comprised of senior officers representing various functions at the Board and Reserve Banks, bringing an interdisciplinary and cross-firm perspective to the supervision of these large financial institutions, the Fed said.
Benmosche made mention of this when he told Binner that AIG reduced its stock buybacks in the first quarter as part of its effort to prepare for federal regulation, which will begin next year, or the so-called "stress test," or Comprehensive Capital Analysis and Review (CCAR), that large bank holding companies now undergo annually. AIG and Prudential will be subject to this test starting next year.
He said the buybacks have been reduced with an eye on coming Fed oversight. "We want to make sure that we satisfy, especially the coverage ratio, more than they're asking us to do, and we're in dialogue with them," Benmosche said. He added that AIG will accelerate this process after it removes International Leasing Financing Corporation from its book when it completes sale of ILFC to AerCap Holdings, a foreign group, in the second quarter.
