American International Group Inc. (AIG:US) fell the most among large financial firms after Goldman Sachs Group Inc. said U.S. oversight may limit the insurer’s ability to buy back shares in the next year.
AIG dropped 2.6 percent to $44.29 at 12:33 p.m. in New York, the biggest decline in the 81-company Standard & Poor’s 500 Financials Index. Goldman Sachs analysts led by Michael Nannizzi cut AIG to neutral (AIG:US) from buy in a note today.
Robert Benmosche, chief executive officer of New York-based AIG since 2009, redeemed debt and struck a deal to sell a plane- leasing unit as he seeks to bolster the company’s credit rating and win confidence of regulators. The insurer halted dividends in 2008, the year of a U.S. rescue, and is overseen by the Federal Reserve after repaying the bailout funds in December.
“We are not confident that AIG’s priority for the next 12 months will shift toward buybacks until it has satisfied both rating agencies (AIG:US) and regulators, the latter of which will reflect a yet undefined framework and timeline,” the Goldman Sachs analysts wrote. The insurer also faces the risks of “credit and interest-rate volatility, and an inability to adequately monetize non-core assets along the anticipated timeline.”
The insurer last year became the first non-bank to disclose it’s under consideration to be labeled a potential risk to the financial system because of its size. Benmosche said in a letter to the Fed in November that he welcomes supervision.
AIG surged 39 percent in 12 months through yesterday as Benmosche repaid the bailout, and results improved at the global property-casualty (AIG:US) and U.S. life businesses that are the main units of a scaled-back company. The insurer last week posted first-quarter operating profit of $1.34 a share, beating by 46 cents the average estimate of analysts surveyed by Bloomberg.
“We see limited upside to our $46, 12 month-price target,” the analysts said. “Current shares now well reflect the fundamental story.”
Jon Diat, a spokesman for AIG, declined to comment.
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