WHEN: TODAY, TUESDAY, JUNE 21ST
WHERE: CNBC’S BUSINESS DAY PROGRAMMING
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with AIG CEO Robert Benmosche today on CNBC. Excerpts of the interview will run throughout CNBC’s Business Day programming. All references must be sourced to CNBC.
KATE KELLY: All right, well, Bob, thank you so much for doing this. We really appreciate it. And-- since this is your first sit down interview since-- the Re-IPO I would love to get your post game analysis of how that offering went and where things stand right now.
BENMOSCHE: Well, first of all it was a major milestone. This is a new beginning of AIG. A lot of people said AIG would not make it-- had to be sold off and would never be-- a firm-- to go forward. And so this Re-IPO basically leaves us a strong, independent investment grade company. So we're into the new-- the new era of AIG being here.
The challenge for us now is to work with the U.S. Treasury for their ability to sell down the remaining 77 percent ownership of the company. But we're really an independent company now. And we're at standalone ratings. We've paid back the Federal Reserve.
And we believe with the sale of the stock-- this time and going forward the U.S. Treasury will be paid back 100 cents on the dollar for what they gave us for TARP, that's the TARP piece of it. And we expect them to make-- a profit. And that doesn't include the almost $5 billion of profit the federal reserve could make-- for their intervention as well and that $5 billion could grow over time as well.
KATE KELLY: We reported on some of the debates that appeared to go on before the Re-IPO was decided upon and then launched about price, timing and so on. Give us your own view about what the sort of discussion were in advance of the launch and how you felt about price, for example, as well as the time frame of starting this.
BENMOSCHE: The issue we faced is that everyone had these myths about AIG and that we lost all our great people, which is not true. Of the top 2,000 people of AIG today 57 percent have been with this company more than ten years, 20 percent more than 20 years. We lost three percent of our top 2,000 people in 2010. We have a strong, experienced leadership team. We didn't lose all those people.
We do business today with 97 percent at Chartis of the Fortune 1,000. That's huge. And you look at Europe and the U.K., similar numbers. And so we still have our clients. That was another myth, all the clients left. That is not true. And so the debate was how much damage actually occurred at AIG? And then the insurance companies except for the sec [securities] lending piece were pretty much intact. And people said, "That just can't be, just can't be. You're gone."
And so the challenge was what is the value of the company as we Re-IPO'd it, and that was a lot of contention. But we have a commitment at AIG that we will pay back the American taxpayer everything that they provided us through TARP plus a profit. And therefore from day one if the Street couldn't deliver the investment proposition we have at-- at a profit we would have pulled the transaction and waited until it was clear from our earnings and our reserves and so on that we were worth at least $29 a share. That was the contention.
KATE KELLY: So through the course of this year it's been really challenging. You're down more than 50 percent on the year. You would blame that, it sounds like, on a perceived talent drain and a client drain that's not true. Any other perceptual or real concerns that you would point to? Maybe past losses at Chartis, for example?
BENMOSCHE: First of all, let me put-- everyone starts at the end of the year. If you look at the last 12 months and compare AIG's performance of our stock relative to other financial companies you'll see we're in line. What happened in December is-- and this is an unusual amount of stock that was in float, very small amount actually. When the warrants were announced and then were going to be issued I believe that there was some speculation and some unusual activity in the market. And you'll see our stock rising dramatically in December.
And so there was a spike. I don't know if that was short covering, people worried about how . But if you just eliminate the spike for that five-week period of time and look at our performance it's actually been relatively flat. So I believe that-- that the challenge we face today, having said that, is the Chartis reserves. And so we've had studies now. Aon, for example, just announced-- a study of reserves for the industry as well as AIG.
We've had outside-- actuaries looking at our reserves. We are very confident that our $68 billion of reserves in Chartis alone is strong. And we also-- you have to keep in mind that $45 billion of that $68 billion are for claims that we haven't yet heard about. These are potential claims. So we believe we have a lot of money put away for anything that could happen into the future and we-- they're strong. And so time will tell.
KATE KELLY: You mention that AIG has performed in line with other financials. I'm curious what comps you're thinking of 'cause this can be a hard company to compare on an apples to apples basis to other companies.
BENMOSCHE: Well, of course, I'm looking at-- if you look at Citi Bank, Bank of America and others that had some difficulty-- if you look at those and other you go back to July and look at the 12 month pattern and everyone could pick their-- their financial companies.
You will see that our change is not as dramatic if you look at the peak, which included the value of the warrants and look at what happened in here, all right, you'll see that-- that the stock really has not underperformed relative to the-- to the peak, again that unusual activity at the end of the year. You'll see that we're pretty much in line.
KATE KELLY: So would it be fair to say that you feel the company's a little misunderstood by the market?
BENMOSCHE: I think it's very misunderstood because-- it just-- people are having a difficult time getting their head around how could a company have such severe problems and still be pretty much intact ex the pieces we had to sell. And so it's about time, it's about performance. You know, we have almost 70,000 employees in this company.
We've done a survey recently and 87 percent believe AIG emerge as a very successful company. When you have 87 percent of the hearts and minds of your people that are committed to paying back the American taxpayer and being a successful company, re-earning-- re-earning their reputations that gives me all the confidence in the world we're going to be fine going forward.
KATE KELLY: So-- in the process of planning this secondary offering was there ever any serious debate about postponing it, say, until fall?
BENMOSCHE: If we did not get the interest that we got and were able to sell-- the shares for a profit for the American taxpayer we would not have gone forward. We'd have pulled the deal and waited till the fall. And so we are absolutely committed as is the U.S. Treasury to make sure the American taxpayer from day one will be paid back every penny that AIG received and hopefully will continue to provide a profit to American taxpayer for the TARP part. And you're also, as I said, going to have a profit from the Federal Reserve part, as well.
KATE KELLY: At the 11th hour of the offering process late in May the-- the stock price had been sort of hovering in the high 20's. I had heard that to you there was important symbolic value in offering this thing at about $29.75 or $1 above that sort of make whole point of-- of $28.73, I believe. Is that correct and why was that important?
BENMOSCHE: It's important that AIG pay back the American taxpayer plus a profit. And my feeling was that I didn't want to just eke out a profit. I wanted to be, you know, well within that zone. And as you can see a lot of pressure, the market started to soften a little bit as we got to the end.
And so we compromised at $29. But yeah, it was compromise but-- but clearly in my mind if there was any doubt that somebody could write and say, "AIG missed it," that is not what this company stands for, it's not what the people want in this company. And I'm responsible to them and to the American public to make sure they get paid back day one and every day going forward what they're owed plus a profit.
And that's what was important and that was symbolic because I believe that. I believe the company has the value. I believe we have the products, we have the clients, we have the employees. We have everything we need. And it's a matter of time to prove that AIG is actually recovered. We're now a strong investment grade independent company moving into the future.
KATE KELLY: So at that point in time, that very late stage did you think about pulling the deal?
BENMOSCHE: I did. And-- I had the support of the U.S. Treasury. And we spent some considerable time on the phone with the U.S. Treasury representatives. And we talked it through and we decided that we would go to $29 because it's important to close the door on, you know, the doubt about, "Will AIG be here?"
We're now a strong, independent grade company, as I said. And now what we've got to do is make sure we operate this company really well so that there is no doubt the American taxpayer will be able to share their shares to the U.S. Treasury and continually sell 'em for a profit. That's our commitment.
KATE KELLY: Speaking of that insofar as you and the Treasury have made any plans, and this is only subject to market conditions. What is the best-case scenario for selling off the remainder of the Treasury's still significant stake in AIG? When might you be done? When would be the next tranche of-- of-- when would be the next sale?
BENMOSCHE: Well, we're-- we've talked about looking at the fall-- gives us two more quarters of performance-- look at how well the company's doing, more analysis of our reserves and some of the other concerns people had. And my sense would be come the fall we'll see how the markets are. We'll see what-- what the marketplace looks like. We'll see what our performance looks like. And then the Treasury will make a decision as will we-- working together to see if there's enough strength-- to be able to make another major offering to-- to the marketplace.
KATE KELLY: So perhaps-- September after people have had a chance to digest the August earnings and markets are back in business for the fall?
BENMOSCHE: No, I would say you-- you'd want to wait until November. You want to really get through the third quarter. Third quarter ends in September obviously so we announce earnings-- you know, early November. And so I would suggest you wait for the full quarter to-- to be achieved.
KATE KELLY: And would the-- idea to be to do another large size offering and maybe even a third if you needed to and then go to sort of a dribble out? Or you'll play it by ear?
BENMOSCHE: We're-- we're-- well, we have to play it by ear. The markets will dictate what has to be done here. Our feeling in the U.S. Treasury's feeling is-- the bigger the better-- and do it at a point where it's clear that we have great strength in the company and-- and a strong future. Remember, the Treasury is not trying to max out its investment. They're not waiting for a time to where you have a large investor to rotate out of a stock.
This is a chance to make sure they sell so they get the money back to the taxpayer plus a profit. And so we need to show the investing public that the opportunity in 2012 and 2013 in strong and that we are a strong and investful proposition. Because the Treasury just wants to liquidate its position.
That's better than if you have a large-- investment manager who has a big hunk of your stock who is rotating out of it 'cause it thinks you may have peaked our your growth is not as good as others. We don't have that consideration. It's making sure there's a profit for the taxpayer, that's all that's essential for the Treasury to get out. And that's a good thing for the people who are buying the stock.
KATE KELLY: Do you feel political pressure coming from the Treasury to get this process done or close to it by the time of the November 2012 election cycle?
BENMOSCHE: I don't feel pressure from the Treasury. I feel pressure from myself. I feel that AIG has been sucked into a lot of controversy. It's important that we show that we lived up to our obligations. We solved this problem as a company of almost 70,000 people including some our advisors-- that are part of the advisor group.
And I believe that-- that once we've done that we don't want to have our name any further associated with issues of bailouts and other kind of thing. We paid back the government, it worked. The financial crisis didn't happen as severely as it could have happened. And that's the good news for our company going forward.
KATE KELLY: Did Wall Street do a good enough job for you guys in this process?
BENMOSCHE: Well, we all have our points of view. I think that it was a struggle. You know, look, everyone including the analysts were caught a little flat-footed, to be honest. Nobody expected us to be where we are. I mean, I joined this company 22 months ago. And when I came here people said, "Are you kidding me?" And-- and you think about—
KATE KELLY: People tried to talk you out of taking the job or—
BENMOSCHE: Well, my family, thank God, wanted me to take the job and-- and they thought I could-- could-- get some things accomplished. But some people said, "Are you nuts?" Because they thought it wasn't fixable. I believe it was fixable. I believe that what Hank Greenberg left is a great legacy of people. There's some issues here and I felt there was a strong enough foundation that giving the people the freedom to act and they choose to act, which they did, you could turn this place around.
So in the 22 months all that people really knew about AIG unfortunately is what they read in the headlines. And I-- no offense, but-- but most of the reporters were ill informed. They-- it was conventional wisdom. And so now they're starting to study the company for the first time, understand the-- what-- what's really here, the values that are here. And I think that will help them over time. So yeah, there was a frustration that they didn't know us very well and they were surprised we were thinking we can go to the eq-- equity markets and raise equity capital—
KATE KELLY: They meaning Wall Street and investors or just investors?
BENMOSCHE: Well, I think it started out with the Wall Street community. They said, "Wow, this is unbelievable." So-- so part of it we said in September we're going to raise about $2.5 billion in equity capital. That was a condition of closing with the Federal Reserve. And so we satisfied that requirement. And that was the last hurdle to where we are today. We're an independent company.
But again, Wall Street was saying, "Wow, we just weren't ready for it." And so yeah, there was a little contention as to what is the value of what's here. And we have our points of view and-- right now the market is-- is pretty much hanging in here as you noticed that it's around $28, so the markets are down.
If you look at comparables over the last, you know, 30 days or so we're doing pretty well relative to other stocks out there, which means people are now digging in and saying that there's some real strong client relationships here, strong employees, we're investful proposition.
KATE KELLY: You've disclosed that you have cancer. And-- I believe you've said starting at the beginning of the year that you would like to remain here at least another 18 months, maybe longer. Is there any change to your point of view on that and can you tell us anymore about how you're feeling and what your condition is?
BENMOSCHE: Well, I'm-- I said to the board I would stay through 2012 if my health is still okay. I'd be glad to stay on into 2013 if that's what the board would like me to do. My health this morning my son and I met on 20th Street on the East Side. He and I ran down the East River with-- with my two and a half year old granddaughter in the carriage. So we had a wonderful morning running and-- I'm feeling fine. I continue to feel fine. And-- you know, let's hope that it continues.
KATE KELLY: In terms of succession planning that's something that-- that the board would want to be looking at in any case if you were going to stay through the end of next year. Chairman Miller has-- has been regarded as an interim CEO if need be. Is there any change to that plan or anything else that we should know about succession planning in general?
BENMOSCHE: We're constantly talking about internal and external candidates. They're keeping very informed as to how our venture's doing internally. We have a very strong management team today. We operate as a strong management team. And so it really is where it may have bee more siloed before, we've accomplished the real team orientation.
Our risk management is done as a team. So we have all of us getting together looking at whether it's the-- earthquake risk or it's hurricane risk or it's equity market risks or interest rate risks and so on. We're all doing this together, so they're continually looking at-- at that team, looking at what candidates could be-- in terms of the future on that team. And so the board is constantly engaged in keeping an eye on how we're doing and we constantly talk about it.
KATE KELLY: Let me ask you about the Maiden Lane portfolio. I'm sure it struck you as no small irony that when the Fed rejected your offer-- earlier this year and then went to an open auction process sub prime bonds hit some tailwinds and began to lose value pretty dramatically.
So as of a couple of weeks ago they probably would have made much more money if they had taken your first offer. Any thoughts on that? I'm sure you were disappointed at the time. But did they do the right thing for optical reasons, for longer-term market reasons or not?
BENMOSCHE: For-- I can only talk from AIG's perspective. We wanted to preserve the $1.5 billion of equity that we had in the portfolio. Well, you're already sitting here with first dollar loss. We're at risk for that kind of money. And so this would have done two things. It would have preserved that capital. It-- we had built the liquidity position in anticipation of it anyway.
And it would have allowed us to reduce the volatility of our earnings. Because once you match your assets and liabilities in insurance company you don't count for it the same way if it's an investment where you're getting a total return on that investment as an SPV vehicle and so on. So-- so it was to accomplish a great deal for us and therefore we would not have some concerns about the company going forward as far as this Re-IPO.
By not doing it became-- a very active conversation during the road shows. It was something further to talk about-- concerns to talk about, the reserves were things to talk about. And so we were hoping to get some-- some tailwinds, that headwind didn't happen. Clearly the markets have. That will put some pressure on our earnings-- because obviously it's marked to market.
So people are looking at those markets and saying, "Gee wiz, it looks like AIG will get a little pressure in this quarter." And so we're just disappointed because now it's another event, which we can't control, which we have to discuss as part our earnings. And it clouds the issue of a really strong day-to-day performance of the company.
KATE KELLY: You've been a bidder in the auction, correct? Have you been successful?
BENMOSCHE: We've not discussed our success or failure. We've had-- been somewhat of a bidder, not as active as maybe people would think. We have won some of those that we chose were very important for us. We've also found other sources of-- of-- product to look at. So we've been able to put a lot of that cash to work already-- by dealing with other banking institutions, for example, that are now looking at Basel III and regulations that are coming down the pipe.
And they're saying this might be an opportune time-- to work with AIG. We had this huge back of cash-- and so there's an opportunity for them to sell right now and now worry about, which is happening right now-- tanking the market 'cause the market just can't absorb all this product all at once. So-- we're satisfied we're able to get what we need from Maiden Lane II plus the banks.
KATE KELLY: Tell us briefly-- where you stand with AIG financial products. You-- you've wound down more than 90 percent of that portfolio-- I'm sure you feel you're in a much better position today than when you started 22 months ago. How much further do you have to go and does this remain an issue of concern to investors?
BENMOSCHE: I think that-- look, first of all it's a condition of closing. The Federal Reserve had been sitting and watching us for the last two years. And they wanted us to push this forward. Had we pushed it more rapidly than what we did we would probably be short $5 to 10 billion today. That would have cost us. Meanwhile we preserved that value, de-risked the portfolio as you said, more than 90 percent. Today our liquidity risk could be somewhere around $1.6 billion. That's covered by the $12.5 billion of liquidity we have at the holding company.
So we have more than enough liquidity to cover any kind of a risk that's in the portfolio. And so on a go forward basis it's about making the right economic decisions for the company. We see-- a slight downside to this portfolio, but we see much more upside than downside. And so-- we're-- we're satisfied, the Federal Reserve is satisfied, the rating agencies are satisfied with where it is relative to our ratings as are the banks who gave us credit.
Remember, we went to the banks and said we need a credit facility to help us deal with contingencies-- because we're giving up the $30 billion of direct support from the U.S. government. So everyone is satisfied. FP, which is now part of AIG, it's been incorporated into our investments, they're pretty satisfied it's not going to blow up on us.
KATE KELLY: Bob, I wanted to ask you about the over allotment that was part of the secondary offering. My understanding to date is that it has not yet been exercised. That were strike me as sort of a bearish sign for the company's perception in the market, something we've been talking about through this whole conversation. Is it your understand it's not yet been exercised and what does that mean to you if anything?
BENMOSCHE: No, it has not been exercised as of now. I anticipate it not being exercised. But keep in mind that as we did this transaction the markets tanked. So you're in a soft market and the market's tanking and you it is very hard to go ahead and deal with the Greenshoe as well.
So clearly the banks—as we went into this and the-- and so on, this was just a challenge for us that you go into tough markets and it happens. And so I think it's as much a condition of the markets as it is a condition of what people think about AIG. I think we had pretty good demand during the-- the re-- the Re-IPO of the company. And my sense is that-- that it's-- it's both, a little bit of the company, but more about the-- the soft markets we're in.
KATE KELLY: All things considered, markets not withstanding, how do you feel about this Re-IPO in retrospect on a scale of one to ten, ten being the most positive?
BENMOSCHE: Well, it's a ten and I'll tell you why. It closes out the past. We're-- we're now in a new chapter of AIG. We're not a strong, independent company on our way. And-- and the key is to show that we can pay back the American taxpayer day one unlike some other transactions that were done by the Treasury. Day one they're getting back their money plus a profit and you'll see that trend continue as they sell out all their shares.
And that's important for the psychology of our company, our people and quite frankly our clients. 'Cause it shows that this company will stand behind everything we do and will live up to every obligation we make. And that's important for our culture going forward.
KATE KELLY: Okay, thank you so much.
BENMOSCHE: Thank you.
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