U.S. Rescinds Federal Oversight of AIG -- Update
30 September 2017 - 8:59AM
Dow Jones News
By Leslie Scism and Ryan Tracy
WASHINGTON -- U.S. officials voted Friday to remove federal
oversight of American International Group Inc., an insurance
company now about half the size it was when it was on the brink of
collapse and became a poster child of the global financial
crisis.
The Financial Stability Oversight Council, a group of senior
financial regulators, voted 6-3 to rescind the global insurer's
designation as a "systemically important financial institution,"
indicating they no longer view AIG as a threat to the broader
economy.
The move frees the insurance company of stricter oversight by
the federal government, such as tighter capital rules, federal
approval for large mergers and placement of government examiners at
the firm. Many of the rules for insurance companies have yet to be
written.
The council applied the label to AIG in July 2013 and previously
had affirmed its findings annually. This year, regulators appointed
by President Donald Trump reversed course, pushed along by new
leaders at AIG who were more aggressive about disputing the
systemically important tag.
"This action demonstrates our commitment to act decisively to
remove any designation if a company does not pose a threat to
financial stability," Treasury Secretary Steven Mnuchin said in a
statement.
Two Obama-era appointees, Federal Reserve Chairwoman Janet
Yellen and Roy Woodall, the council's insurance expert, joined four
Trump appointees in approving the action. Three Obama appointees
opposed the move. Securities and Exchange Commission Chairman Jay
Clayton recused himself.
Ms. Yellen declined to comment through a spokesman.
AIG "has changed dramatically since the start of the financial
crisis," said National Credit Union Administration Chairman Mark
McWatters, a council member who voted in favor of removing the
label. "It's time to let them go back to traditional insurance
regulators."
Freeing AIG of the label is steeped in significance. AIG
received one of the government's biggest bailouts during the crisis
as regulators feared its collapse would have far-reaching and
unpredictable repercussions. It had extensive and complex financial
dealings with big banks and other financial firms in the U.S. and
Europe.
Its rescue package, which ultimately topped $182 billion, upset
homeowners who were struggling to keep up mortgage payments. The
missteps that brought AIG to the brink played heavily into
lawmakers' decision to create the new oversight council in the 2010
Dodd-Frank financial regulatory law and give it the authority to
pull in firms such as AIG for tougher regulation.
AIG fully repaid its bailout by the end of 2012 by selling off
businesses and other assets to roughly halve its size. Months
later, the oversight council determined AIG posed a risk to the
economy and designated it as systemically important. It was the
first time the council had used its main Dodd-Frank power.
Entering 2008, AIG had $1.048 trillion in assets on its books,
though their true value was unknown at that point. Many government
and insurance officials expected a liquidation.
As of June 30, 2017, the company had $499.76 billion of total
assets. That makes it smaller than other insurers not labeled
significantly important, including Warren Buffett's Berkshire
Hathaway Inc., which has $666 billion in assets.
AIG remains one of the world's biggest sellers of
property-casualty insurance to businesses worldwide and is also a
major seller of life insurance and retirement-income products in
the U.S., along with home and car insurance to wealthy
households.
Removal of the label leaves Prudential Financial Inc. as the
sole non-bank firm with the label, for now. Regulators rescinded it
for General Electric Co.'s financing arm in June 2016.
Another insurer, MetLife Inc., successfully challenged its
designation in federal court, though the matter was appealed and is
now on hold while the Treasury Department reviews the designation
process.
Some Wall Street analysts think Prudential will be freed of its
label soon. Prudential said in a statement earlier in September
that it doesn't meet the standard for the designation and that
"flaws in the review process led to this outcome."
Analysts said AIG's share price in recent weeks has reflected a
high probability that it would get out of the label. Still, action
by regulators could give shares a lift "as it should help reduce
regulatory costs and eliminate the potential annual 'black cloud'
associated with" stress testing by the Fed, Thomas Gallagher of
Evercore ISI said in an analyst note.
Write to Leslie Scism at leslie.scism@wsj.com and Ryan Tracy at
ryan.tracy@wsj.com
(END) Dow Jones Newswires
September 29, 2017 18:44 ET (22:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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