AIG Investors Shake Off a Pitch to the Head

Two and a half hours into trading, American International Group (NYSE: AIG  ) stock is up 0.6% as investors ride a Fed-induced market wave and confidently shrug off being designated a SIFI.

This just in
SIFI stands for Systemically Important Financial Institution. The designation was coined as part of 2010's Dodd-Frank financial reform act. Yesterday, the Financial Stability Oversight Council announced that AIG, along with GE Capital, would be designated SIFIs: the first two non-banks to receive this dubious honor. 

In market news, the minutes from the Federal Reserve's June 19 Federal Open Market Committee meeting were released yesterday. Rabid dissection of the discussion behind the FOMC's previous announcement that quantitative easing would be tapered as soon as this year revealed dissension in the ranks, with many Fed governors arguing not to taper too soon. 

Foolish bottom line
What does it mean for AIG's bottom line that it was designated a SIFI? Like its now-brethren SIFI-designated banks, the insurance giant will be held to higher capital-reserve levels. And just like with banks, capital held in reserve is capital not out there making money for the business and for shareholders.

As such, this designation will undoubtedly affect AIG's bottom line, and therefore the stock's prospects for growth in the eyes of shareholders.

And after AIG's disastrous performance in the financial crisis, it would have been difficult for the FSOC not to designate AIG systemically important, even though the division that caused the trouble -- AIG Financial Products Corporation -- is in the process of winding down. AIG is getting to be a traditional insurance company again, but memories of a $182 billion taxpayer bailout were likely too fresh to be ignored.

Guilty until proven innocent is still the FSOB's modus operandi when it comes to AIG, though investors seem nonplussed.

And though it seems like, finally, equity markets may have been adjusting to the idea that QE might be going away as soon as later this year, the FOMC minutes have propagated another market wave. In a way, that's too bad; the equity markets have to return to normal sooner or later, and it was good they were seemingly starting to make the adjustment. But now we may have to go through another panic when the Fed really does begin dialing QE back, or at least takes a more definitive stand on the issue of tapering. 

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  • Report this Comment On July 11, 2013, at 1:19 PM, foolishfollies wrote:

    Once again, as I expressed on another stories comment section about this , the ONLY people who seem surprised by this designation of systemically important appear to be the good folks at Motley Fool. Have a nice day.

  • Report this Comment On July 13, 2013, at 7:57 AM, quantumvibes wrote:

    "though investors seem nonplussed." - nonplussed has traditionally meant "utterly confused," not the reverse. The same thing has been happening with the word "peruse," which means to read with great care. Notwithstanding, you see it in use to mean "to scan." So, we have decided to invest the same words with opposite definitions! Examples, I guess, of the organic nature of language.

    On a similar note, the standard preposition that follows "enamored" is "of" not "with."

    Not saying anything is right or wrong here, just noting something I found to of interest.

  • Report this Comment On July 15, 2013, at 9:39 AM, XMFGrgurich wrote:

    I used "nonplussed" incorrectly. Good catch.

    I meant to convey that they weren't bothered by the SIFI designation, but instead I conveyed that they were confused. My bad. Thanks again, and thanks for reading.

    John

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