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CNBC Exclusive: CNBC Transcript: AIG CEO Peter Hancock Speaks with CNBC’s “Squawk on the Street” Today

WHEN: Today, Tuesday, November 3rd

WHERE: CNBC's "Squawk on the Street"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with AIG CEO Peter Hancock on CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET) today. Following are links to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000443598 and http://video.cnbc.com/gallery/?video=3000443389.

All references must be sourced to CNBC.

DAVID FABER: AIG REPORTING EARNINGS AND REVENUES THAT WERE BELOW AT LEAST THE ESTIMATES OF THE ANALYSTS THAT FOLLOW THE COMPANY THAT WAS LATE YESTERDAY OF COURSE AFTER THE BELL AND IT ALSO TOOK A HALF BILLION RESTRUCTURING CHARGE AS IT TRIES TO SIMPLIFY IT'S BUSINESS. THIS COMES LESS THAN A WEEK AFTER CARL ICAHN PUBLICLY URGED THE COMPANY TO BREAK ITSELF APART AND IN PART BRING DOWN COSTS AS WELL. PETER HANCOCK IS CEO OF AIG. HE JOINS US NOW TO SHED SOME LIGHT ON THE COMPANY'S PLANS GOING FORWARD. WALKING OVER FROM HEADQUARTERS NOT FAR FROM HERE. GLAD YOU COULD BE WITH US.

PETER HANCOCK: GOOD MORNING, DAVID.

FABER: MR. ICAHN LAST WEEK IN A LETTER SIMPLY COMES OUT AND SAYS, HEY, DO A TAX RESEPARATION OF LIFE AND MORTGAGE, AND OBVIOUSLY PNC, HAVE THEM BE THREE SEPARATE COMPANIES, YOU'LL NO LONGER BE DESIGNATED A SIFI SO TO SPEAK AND THEREFORE PERHAPS YOUR COST TO CAPITAL WILL IMPROVE BUT YOUR ABILITY TO RETURN CAPITAL WILL MARKETLY IMPROVE AND YOU'LL CUT COSTS. WHY ISN'T THAT A GOOD PLAN?

HANCOCK: WE AGREE EVERYTHING HE SAYS EXCEPT FOR THE SPLITTING OF THE COMPANY. WE CERTAINLY THINK THAT CUTTING COSTS IS A VERY IMPORTANT PRIORITY FOR THE COMPANY AND WE THINK RETURNING CAPITAL IS VERY IMPORTANT FOR THE COMPANY. TO DO SO, HOWEVER, SPLITTING THE COMPANY WOULD ACTUALLY INCREASE THE AMOUNT OF CAPITAL REQUIRED. BECAUSE THE RATING AGENCIES ARE THE BINDING CONSTRAINT AS OPPOSED TO THE DESIGNATION AS SIFI. OUR FOCUS IS ON GROWING THE COMPANY, CUTTING COSTS, AND SPLITTING THE COMPANY AND REMOVING THE SIFI DESIGNATION IS SIMPLY A DISTRACTION.

FABER: YOUR POINT SIMPLY IS IT'S NOT ABOUT SIFI, IT'S ABOUT THE RATINGS THAT APPLY AS A RESULT OF BEING AN INSURER WHAT WOULD HAPPEN THEN IF YOU WERE TO SPLIT THEM? LET US UNDERSTAND A BIT WHY YOU WOULD ACTUALLY BE CONSTRAINED IN RETURNING CAPITAL FROM A SPLIT AS OPPOSED TO THE OTHER?

HANCOCK: AS BOTH MOODY'S AND S&P HAVE SAID IN THEIR RECENT PUBLICATIONS, HAVING A LIFE AND PROPERTY CASUALTY BUSINESS TOGETHER AND THE INTERNATIONAL DIVERSIFICATION WE HAVE AS A COMPANY REDUCES THE AMOUNT OF CAPITAL WE NEED TO SERVE OUR 90 MILLION CUSTOMERS AROUND THE WORLD. SPLITTING THEM, IT WOULD REQUIRE MORE CAPITAL IN EACH OF THE COMPONENT PARTS. WE ARE NOT AVERSE TO SIMPLIFYING THE COMPANY, BUT CERTAINLY THAT SPLIT BETWEEN PROPERTY AND CASUALTY AND LIFE WOULD NOT RELEASE ANY ADDITIONAL CAPITAL. IT WOULD ACTUALLY REQUIRE MORE CAPITAL.

FABER: HAVE YOU HAD ANY CONVERSATIONS WITH MR. ICAHN?

HANCOCK: WE PLAN TO -- SHORT, BRIEF CONVERSATIONS, BUT THE FIRST TIME WE'LL SIT DOWN TOGETHER WILL BE ON THURSDAY.

FABER: THIS COMING THURSDAY YOU'LL TALK TO HIM.

HANCOCK THAT'S RIGHT.

FABER: ANY EXPECTATIONS FOR WHAT EXACTLY WE KNOW WHAT'S ON HIS AGENDA. YOU KNOW AS MUCH AS WE DO BASICALLY. YOU GOT A LETTER, YOU SAW IT, YOU READ IT.

HANCOCK: EXACTLY. I LOOK FORWARD TO HEARING HOW ELABORATE ON THOSE VIEWS AND HOPEFULLY HE'LL LISTEN TO WHAT WE HAVE TO SAY ABOUT THE COMPANY. IT'S A LARGE COMPANY WITH A LOT OF MOVING PARTS. WE HAVE IMPORTANT TAX ISSUES THAT HE NEEDS TO UNDERSTAND TO UNDERSTAND THE PROS AND CONS OF DIFFERENT STRAGTEGIC CHOICES.

FABER: ANOTHER REASON PERHAPS YOU MAY NOT WANT TO PURSUE SAID SEPARATION IS TAXES?

HANCOCK: CORRECT YES.

FABER: WHY?

HANCOCK: WE HAVE A VERY SIGNIFICANT FOREIGN TAX CREDITS AS WELL AS A NET OPERATING LOSS TO CARRY FORWARD. WE WOULD ENDANGER UP TO 5 BILLION OUT OF OUR TOTAL $15 BILLION OF TAX ATTRIBUTES IF WE WERE TO SPLIT THE LIFE AND PROPERTY CASUALTY COMPANY.

FABER: ANOTHER LARGE SHAREHOLDER OF YOURS IS JOHN PAULSEN HE WAS QUOTED IN THE THIS LETTER. ARE YOU GOING MEET WITH HIM OR HAVE YOU PREVIOUSLY?

HANCOCK: HE'S BEEN A SHAREHOLDER FOR SOME TIME. AND LIKE ALL OUR SHAREHOLDERS I MEET WITH ALL OF THEM QUITE FREQUENTLY.

FABER: BUT HE SEEMED TO PROPOSE THE SAME THING. LET ME COME TO A SPECIFIC ABOUT WHAT THEY ARE TALKING ABOUT WHEN IT COMES TO COSTS WHICH CUTS BACK TO YOUR RETURN ON EQUITY. IN THE END OF THE LETTER, THE ICAHN LETTER, THEY SAID LISTEN, THE GOAL TO HAVE A 10% RETURN ON EQUITY IS GREAT. BUT SAYING YOU'LL DO IT BY A HALF PERCENT A YEAR, YOU'RE TURNING THIS QUEST INTO A HALF DECADE JOURNEY. ONE THING WE DO AGREE ON IS AIG'S LACK OF COMPETITIVENESS. DO YOU HONESTLY THINK NOW IS NOT THE TIME FOR THE INEVITABLE AIG TRANSFORMATION.

HANCOCK: I THINK YOU NEED TO LOOK AT WHAT AIG HAS ACCOMPLISHED OVER THE LAST FIVE YEARS. WE SOLD OVER 30 COMPANIES. WE'VE RETURNED OVER $26 BILLION OF CAPITAL TO SHAREHOLDERS. IT'S ANYTHING BUT A SLOW MARCH. WE ARE FOCUSED ON NARROWING OUR STRATEGIC FOCUS AS A COMPANY ON THE AREAS WHERE WE CAN GROW PROFITABLY, FOCUSED ON EFFICIENCY AND INVESTING IN PROFITABLE GROWTH, LEVERAGING THE DATA ASSETS THAT WE HAVE AS A COMPANY AND RETURNING EXCESS CAPITAL TO SHAREHOLDERS AND WE CONTINUE TO DO SO AT AN INCREASING PACE.

JIM CRAMER: STOCK PRICE RIGHT NOW IS AT $60. I PRESUME MAYBE THE BEST INVESTMENT IS IN YOURSELF.

HANCOCK: ABSOLUTELY. WE'VE BEEN BUYING BACK STOCK AT A PACE TEN BILLION IN MY FIRST YEAR IN THE JOB. AND WE HAVE SOLD COMPANIES THAT ARE NON-CORE, PICC, THE REMAINING STAKES OF AIR CAP AND SPRING LEAF ALL NARROWING OUR FOCUS ON OUR CORE COMPETITIVE ADVANTAGE.

CRAMER: PETER, IN THE PRESS RELEASE YOU ACTUALLY MENTIONED SOME NOT GREAT RESULTS FROM HEDGE FUNDS THAT YOU'RE INVESTED IN. CAN YOU TALK ABOUT THAT? YOU KNOW, IT'S BEEN A TOUGH YEAR FOR HEDGE FUNDS MAYBE THAT'S AN INVESTMENT CLASS THAT'S NOT RIGHT FOR AIG.

HANCOCK: WE HAVE A VERY SUBSTANTIAL INVESTMENT PORTFOLIO LIKE ALL INSURANCE COMPANIES. THE VAST MAJORITY IS IN CORPORATE BONDS AND MORTGAGE BACKED SECURITIES, AGENCY MORTGAGE BACKED SECURITIES. WE DO HAVE AN ALLOCATION TO HEDGE FUNDS AND PRIVATE EQUITY AS PART OF A DIVERSIFIED PORTFOLIO AND IT DID UNDERPERFORM DRAMATICALLY IN THE THIRD QUARTER. OVERTIME IT'S DONE REALLY WELL WITH US. BUT I DO THINK WITH OUR NEW CHIEF INVESTMENT OFFICER HE WILL BE TAKING A GOOD LOOK AT OUR STRATEGIC ASSET ALLOCATION AND LOOKING VERY CRITICALLY AT THOSE FUNDS TO MAKE SURE THEY ARE NOT CORRELATED TO THE BROAD MARKETS.

FABER: SOME WOULD SAY A WEEK AFTER AN ACTIVIST COMES OUT AFTER YOU, IT'S NOT PARTICULARLY GREAT WHEN YOU REPORT A QUARTER LIKE YOU DID, MR. HANCOCK. I MEAN, IT WAS NOT A STRONG QUARTER. WE WERE TALKING ABOUT IT, BUT YOU SEEM TO BE BLAMING MARKET VOLATILITY. I WOULD LOVE TO UNDERSTAND THAT A BIT MORE. I GUESS WE'RE TALKING ABOUT, WHAT? A NET AFTER TAXED REALIZED CAPITAL LOSS OF 216 MILLION AND THEN OBVIOUSLY SOME OTHER THINGS AS WELL IN THERE. WHAT DOES THAT MEAN, MARKET VOLATILITY?

HANCOCK: SO MARKET VOLATILITY IS A CAPITAL MARKET VOLATILITY ON THE INVESTMENT SIDE AND THAT IS A BIG PART OF THE MISS. BUT WE WERE THE FIRST ONES TO ADMIT THAT THE OPERATING RESULTS WERE NOT WHAT WE'D LIKED. SO, WE CERTAINLY WERE NOT PLEASED WITH THE RESULTS IN THE U.S. COMMERCIAL CASUALTY SPACE, BUT WE WERE PLEASED WITH THE GROWTH IN INTERNATIONAL PROPERTY UNDERWRITING AS WELL AS SEEING THE FIRST GROWTH IN OUR JAPAN PERSONAL AUTO BUSINESS IN OVER A DOZEN YEARS. SO, THAT'S BEEN A TURNAROUND SITUATION WHICH WE ARE NOW SEEING GOOD PROGRESS IN.

FABER: TO THE EXTENT THAT YOU'RE NOT PLEASED WITH SOME OF YOUR RESULTS, WHAT ARE YOU DOING TO MAKE SURE THAT HAS NOT REPEATED?

HANCOCK: WELL, I THINK THAT WE ARE INVESTING IN THE DATA ANALYTICS TO PROVIDE MORE PRECISE RISK SEGMENTATION. BUT WE'RE ALSO INVESTING IN THE TECHNOLOGY TO REDUCE OUR COSTS SO THAT WE CAN BE A MORE AUTOMATED COMPANY. SO, COST IS OUR MOST IMPORTANT CURRENT PRIORITY AND WE'RE URGENTLY LOOKING AT HOW WE CAN RATIONALIZE THE DIFFUSED COST BASE OF THE COMPANY. SHARED SERVICES AND AUTOMATION IS A KEY DRIVER OF THE COST REDUCTIONS. AND YEAR TO DATE, WE'RE DOWN 6% ON OUR NET COST WHILE WE INVEST IN GROWTH. SO, WE'RE MAKING VERY SUBSTANTIAL HEADWAY AND THIS ANNOUNCED RESTRUCTURING CHARGE IN THE THIRD QUARTER IS AN INDICATION THAT WE ARE TAKING COSTS VERY SERIOUSLY. WE'LL BE ELIMINATING 23% OF THE TOP 1400 LEADERS OF THE COMPANY AS WE NARROW OUR STRATEGIC FOCUS ON THE AREAS THAT WE CAN WIN.

FABER: I MEAN AGAIN, A BILLION TO A BILLION AND A HALF OF NET GENERAL OPERATING EXPENSES IS WHAT YOU'RE TALKING ABOUT TAKING OUT OF THE COMPANY.

HANCOCK: NET.

FABER: NET.

HANCOCK: NET. EXACTLY. NET.

FABER: THAT IS A BIG NUMBER.

HANCOCK: IT IS A BIG NUMBER AND WE'RE URGENTLY EXECUTING ON IT.

FABER: AND YOU'RE CONFIDENT YOU CAN GET THERE?

HANCOCK: ABSOLUTELY CONFIDENT WE CAN GET THERE.

FABER: WHY?

HANCOCK: WELL, WE SPENT A LONG TIME PLANNING THIS. THIS IS NOT A KNEE-JERK REACTION. THIS IS SOMETHING WE'VE TAKEN THE YEAR TO GET ALIGNMENT ON STRATEGY BETWEEN EMPLOYEES, MANAGEMENT AND THE BOARD. AND AT THIS POINT, IT'S ALL ABOUT EXECUTION AND WE'RE VERY URGENTLY EXECUTING ON THOSE PRIORITIES.

FABER: JIM, ANY OTHERS?

CRAMER: YEAH. BOB BENMOSCHE, A GREAT AMERICAN, OK? LET'S JUST SAY A LATE GREAT AMERICAN, REALLY ONE OF THE GREAT CHARACTER OF ALL TIME. I THOUGHT THAT HE CUT OUT A HUGE AMOUNT OF COSTS. I MEAN, WHAT WAS THIS COMPANY DOING? WHAT KIND OF COST STRUCTURE DID IT HAVE BEFORE YOU CAME IN AND BOB BENMOSCHE CAME IN?

HANCOCK: BOB, WHO I'M A DEAR, DEAR FRIEND OF, REALLY DID A WONDERFUL JOB. AND HIS TOP PRIORITY WAS REPAYING THE U.S. TAXPAYER IN FULL ON TIME. AND SO THAT WAS HIS PRIORITY. AND I THINK IT WAS THE RIGHT PRIORITY TO GET THIS COMPANY BACK ON ITS FEET, GROWING AGAIN WITH ITS CUSTOMERS STAYING WITH US. WE RETAIN 92% OF OUR CUSTOMERS THROUGH THE CRISIS AND I THINK BOB WAS FOCUSED ON CUSTOMERS AND REPAYING THE GOVERNMENT.

FABER: ALRIGHT. ICAHN LIKES TO HAVE DINNER, I DON'T KNOW. AND A FEW MARTINIS. I DON'T KNOW WHAT YOUR PLAN IS. ARE YOU GOING TO HAVE HIM DOWN TO HEADQUARTERS OR WHAT?

HANCOCK: WE'VE AGREED TO MEET IN HIS OFFICES.

FABER: IN HIS OFFICES, ALRIGHT. PROBABLY LATE IN THE DAY. ANY IDEA HOW MUCH HE ACTUALLY OWNS? BECAUSE HE SEEMS FOR SOME REASON NOT TO BE – I MEAN, ON APPLE WE KNOW WHAT HE OWNS. ON NETFLIX WE KNOW WHAT HE OWNS.

HANCOCK: I'M NOT SURE WHAT HAS BEEN DISCLOSED. NOW, I THINK THAT WE ARE ALWAYS ENGAGED IN TALKING TO ALL OF OUR SHAREHOLDERS. WE'VE BEEN VERY ENGAGED. AND AS WE HEAR FROM ALL OF OUR SHAREHOLDERS, THEIR IDEAS, WE ARE OPEN TO IDEAS. WE HAVE A CLEAR STRATEGY. WE'RE EXECUTING ON IT. AND WE UNDERSTAND THE NEED FOR URGENCY. SO, WE WELCOME THE FACT THAT HE THINKS THAT THIS COMPANY IS WORTH $100 A SHARE. THERE ARE NO SHORT CUTS TO IT HOWEVER.

FABER: RIGHT. WELL, YOU MAY BE SPEAKING A DIFFERENT TUNE IF HE ACTUALLY DECIDES TO RUN A PROXY FIGHT. THAT CAN BE VERY DISTRACTING. I'M SURE YOU KNOW THAT.

HANCOCK: THERE ARE MANY DISTRACTIONS. THIS IS A COMPANY THAT HAS KEPT ITS EYE ON THE BALL THROUGH A LOT OF DISTRACTIONS OVER THE LAST FIVE YEARS AND WE HAVE DELIVERED FOR SHAREHOLDERS.

FABER: MR. HANCOCK, WE APPRECIATE YOUR COMING BY AND JOINING US. THANK YOU.

HANCOCK: THANK YOU VERY MUCH.

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