Nearly two years after the federal government bailed out an ailing American International Group Inc. with a $170 billion cash infusion, its broker-dealer group is inching its way slowly back to health. Indeed, thankfully for all concerned, the perception of AIG as the "evil empire" has since faded somewhat.
Credit the arrival of Robert Benmosche in August 2009 as AIG's new CEO and president for this positive augury. Within days, the 66-year-old former MetLife chieftain announced that the three venerable broker-dealerships that had operated as the AIG Advisor Group for years-Royal Alliance Associates in New York, SagePoint Financial in Phoenix and FSC Securities of Atlanta-would not be sold, as he recognized them as "core businesses," along with Chartis, a global property and casualty business. He felt the B-Ds were good businesses worth saving, and decided they would remain a vital part of the organization after the federal government was paid off.
The AIG Advisor Group has been part of SunAmerica Financial Group for over 20 years, and up to three years ago its B-Ds had been run top to bottom as separate independent contractor B-Ds. SunAmerica purchased Royal Alliance in 1990, FSC in 1997 and SagePoint in 1998. Today, each B-D remains a separate entity with its own net capital and operating capital and is operated as a separate affiliate of SunAmerica Financial Group, which was acquired by AIG in 1999.
In the public lexicon, insurance giant AIG is still identified with the credit market squeeze and subsequent economic meltdown. AIG nearly collapsed in 2008 but the federal government stepped in with approximately $182 billion to bail it out. According to sources, 95% of AIG's business units were profitable and 50% were enjoying record revenues in 2008 when its financial products unit forced it to seek a bailout that September, thanks largely to losses on credit default swaps.
On September 30, 2010, AIG outlined a recapitalization plan that would allow it to repay the government. In early November, it raised nearly $37 billion through its sale of an insurance subsidiary, American Life Insurance Company, and the initial public offering of a second, AIA Group Limited. AIG expected to use the cash proceeds from the ALICO and AIA transactions to repay the credit facility extended to AIG by the Federal Reserve Bank of New York and to make payments on other interests owned by the government.
Not surprisingly, the Advisor Group is doing everything it can today to separate itself from the monolithic AIG. The toxicity of the AIG name was one of the biggest hurdles the Advisor Group faced when it set about rebuilding itself early last year. Its rebranding effort since has been intrinsic to its rebirth. Dispensing with the "AIG" preface during the past several months, the three B-Ds, in fact, have been referring to themselves simply as the "Advisor Group."
Up to several years ago, SagePoint Financial was known as SunAmerica Securities and later AIG Financial Advisors, but has since been rechristened SagePoint Financial. Royal Alliance and FSC have had the same name many years.
At the beginning of the rebirth, there was a six- to nine-month period of indecision when many advisors in the group were left in a quandary about whether the B-Ds would be sold to one of several private-equity firms clamoring for a deal.
To jump or not to jump. That was the question at that time. It boiled down to that.
"AIG at that time thought it would be best for the businesses to divest [themselves from AIG] because of the stresses of the financial markets and the AIG brand," recalls Larry Roth, president and CEO of the Advisor Group in an interview at One World Financial Center in Manhattan, the group's headquarters. "But after Bob came in, he told us he was willing to commit and support the business, and we immediately decided to stay in the business, and from that point on we've been investing heavily in the B-Ds."