Carl Icahn is not calling the shots at AIG (AIG).
That message was reinforced this week, after the struggling insurer announced it would begin to unwind its mortgage segment, United Guaranty, in the hopes that a leaner business would help untie AIG from stringent federal regulations.
Icahn, the billionaire investment activist, had wanted more, and recently has been hounding AIG to split apart its business into three branches. But turnaround plans unveiled Tuesday aim to keep most of the company intact.
"The silver lining for investors is that the diminished likelihood of a breakup only reinforces the scrutiny on AIG management to succeed in the strategic plan laid out yesterday. We doubt investors will tolerate more than, say, two quarters without demonstrated progress," Keefe, Bruyette & Woods analyst Meyer Shields wrote in an investment note Wednesday.
But Wall Street seems to be unimpressed by AIG's efforts to get back on track. Shares are down 12% so far this year, falling 3% this week.
One reason is that many, including Icahn, want to see AIG shed its onerous Systemically Important Financial Institution (SIFI) rating, which essentially equates to federal recognition that AIG is too big to fail.
But one benefit of keeping most of the company together is salvaging the substantial revenue that can help offset taxes.
"Our bottom line is that despite pressure to pursue a broader restructuring, AIG is likely to pursue a slower, more methodical path to considering divestitures -- in part due to an effort to preserve value for the tax assets," Credit Suisse (CS) analysts wrote in an investment note on Tuesday.
AIG's CEO, Peter Hancock, said there's no need to take such drastic measures as Icahn has been advocating, but didn't rule out possible business exits in the future to cut costs.
"I don't see any short-term imperative to divest large elements of the company," he said on this week's announcement to investors. "But there are no sacred cows, and we will hold each of the modular business units accountable to earning their cost of capital and sharing their progress of improving their operating performance."
AIG's mortgage unit, especially its financial products division tied to subprime loans, is the chief division that ensnared the insurer in the 2008 financial crisis, and shares are still trading 95% below the beginning of that year.