American International Group To Divest Mortgage Business
Zacks Investment Research | Aug 16, 2016 10:06PM ET
American International Group Inc. (NYSE:AIG) announced that it will divest its mortgage insurance unit United Guaranty Corporation to Arch Capital Group Ltd. (NASDAQ:ACGL) for $3.4 billion. The divestiture is aimed at turning AIG into a leaner and more-focused company.
American International’s CEO Peter Hancock came under pressure last year from billionaire investor Carl Icahn to slice the company into three different units to ease its operations. The latest divestiture should serve that purpose.
Back in Nov 2015, in a letter addressed to Peter Hancock, Carl Icahn asked for a split in the mammoth company into three parts – property and casualty, life and mortgage insurance. According to Icahn, American International runs such diverse businesses that its business lines have little strategic fit between them and their segregation may unlock much greater value. He pointed out that American International’s behemoth size and diverse businesses have become a hindrance in its own path toward progress. The investor pointed out that the company is generating sub-par returns.
He also pointed out that American International is “too big to succeed” and that it considerably lags its peers in terms of generating returns for its shareholders. Constraints such as size and capital are the primary culprits. The company faces stringent capital restriction that hampers its competitiveness. He also held American International’s inadequate expense management responsible for its downfall.
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