(Updates shares in the sixth paragraph.)
June 9 (Bloomberg) -- American International Group Inc. may buy mortgage-backed securities from European banks seeking to bolster their balance sheets as the insurer works to boost investment results, Deutsche Bank AG said.
AIG Chief Executive Officer Robert Benmosche is hunting for assets to add to the investment portfolio after the Federal Reserve Bank of New York rejected his $15.7 billion offer to buy back a pool of mortgage bonds turned over as part of the company’s bailout. AIG had about $21 billion in investible cash as of Dec. 31.
“There may be bargains available from buying RMBS securities from European banks seeking better positioning under Basel III” accounting requirements, said Deutsche Bank analysts led by Joshua Shanker said in a note to investors yesterday. “We note that increased yield, in this regard, also carries with it increased risk.”
AIG plans to increase annual investment income by $500 million to $700 million, the New York-based insurer said in a regulatory filing last month, without specifying what types of securities it would buy. Mark Herr, a spokesman for the company, declined to comment.
“Management may be underestimating the potential upside” from investing the insurer’s cash, Shanker said. He initiated coverage of AIG with a “buy” rating and said the share price may rise to $34 in early 2012.
AIG gained 78 cents, or 2.9 percent, to $28.10 at 4 p.m. in New York Stock Exchange composite trading. The insurer had declined 42 percent this year, the second-worst performance on the Standard & Poor’s Index. The U.S. Treasury Department lowered its stake to 77 percent last month in a share sale.
More Wall Street analysts are beginning to cover AIG after investment banks helped the Treasury, led by Secretary Timothy F. Geithner, cut its stake from 92 percent. Barclays Plc today initiated coverage of AIG with an “equal weight” rating. Goldman Sachs Group Inc. yesterday issued a “neutral” rating on the insurer.
AIG is benefiting from increased stability among its top managers, said Barclays analysts led by Jay Gelb. Benmosche, 67, became the insurer’s fifth CEO since 2005 when he joined the company about two years ago.
Peter Hancock, who was named in March to turn around the unprofitable property-casualty division, may be “next in line” for AIG’s CEO post, Gelb said today. Hancock, who spent 20 years at a predecessor to JPMorgan Chase & Co., joined AIG in 2010 to help repay the government and unwind the derivatives business that brought the company to the brink of collapse.
AIG has said that Benmosche, who has been diagnosed with cancer, should be able to stay on the job through the middle of next year. Benmosche would consider extending his tenure into 2013, heath permitting, he told Risk & Insurance, an industry publication, in an article published yesterday.
--With assistance from Andrew Frye in New York. Editors: Dan Kraut, William Ahearn
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