The outlook remains mixed for American International Group following the first financial results reported in the aftermath of investigations that have led to the ouster of company pioneer Maurice Greenberg, analysts said.
The 50 percent increase in net income impressed observers particularly in the wake of the drag on domestic life sales and capital markets operations following continuing inquiries by state and federal regulators into AIG accounting and business practices.
A.G. Edwards analyst Paul Newsome expressed concern about press reports that Mr. Greenberg tried to cover up records sought by the New York Attorney General Eliot Spitzer. "It has become clear to us that the regulatory issues will be long lasting for AIG."
In addition, current CEO Martin Sullivan carries some potential baggage of his own. "There is considerable investor uncertainty about Martin Sullivan, the new CEO, and whether he might have been involved in any wrongdoing," Mr. Newsome wrote in a note to investors.
Mr. Sullivan ran AIG's p-c business, which is the segment of the company that is currently under investigation.
At the shareholders annual meeting Thursday, Mr. Sullivan, along with Chairman Frank Zarb, made every effort to convince stakeholders that the company has turned over a new leaf in its regard of regulators. There will undoubtedly be no more talk of "foot faults" that came from Mr. Greenberg, who is fond of tennis if not regulatory oversight.
Peter Streit, analyst for Williams Capital Advisors, said: "Indications are that the company is about to reach an agreement with Mr. Spitzer for a dollar figure in the area of $850 million."
Such a figure would be in line with the Marsh and Aon settlements and would not put much of a dent in a company with AIG's capitalization, Mr. Streit said.
Anticipating a settlement of that size coupled with the better-than-expected performance of many of the company's segments in the second quarter has led Williams to maintain its strong "buy" position on the company.
Smith Barney analyst Ron Frank downgraded the company recently, asserting that its 25 percent rise in the stock price since its low point in April has reached its limit. Specifically, he expressed concerns about the top-down review of the company's entire reserve structure that will be completed by Milliman and Company sometime this year.
In a "white paper" he issued questioning the integrity and wisdom of the company's financial restatement following his resignation, Mr. Greenberg said the addition of $850 million in asbestos and environmental reserves was done without the traditional "ground-up" study for the purpose of inflating the dollar value of the CEO's purported misdeeds.
At the shareholders meeting, Mr. Sullivan said the Milliman study was the first of its kind ever done of reserves for the company whose origins go back to the end of World War I.
In addition, Chief Financial Officer Steven Bensinger said he hoped to have all of the company's internal controls in place by the end of the year, including the creation of a disclosure committee and expansion of the scope of the panels that review complex financial transactions.
Also, the separation of the chief executive and board chairman's position along with the planned election of three independent directors will help the company move its corporate governance structure in the right direction, Mr. Bensinger said.
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