It turns out that Bob Benmosche, the new head of American International Group, isn't selling the company's three independent broker-dealers.
Smart guy, that Bob, who hasn't discussed his reasons for retaining the brokerage businesses that were so eagerly peddled by his predecessor, Ed Liddy.
Let me speculate on some of the thoughts that may have run through Bob's mind.
First, why sell FSC Securities, Royal Alliance and SagePoint Financial at fire-sale prices? Having been on the market so long, the three firms have lost their allure. Would-be buyers are looking for a bargain. Mr. Benmosche probably figured that there was no reason to give away the businesses. In fact, the mere act of taking the firms off the market probably increased their attractiveness.
Second, and related to the first, is that he knows the securities business is cyclical. Things already are starting to pick up, so he probably figured that it pays to wait out the current slump and sell — if and when that makes sense — at some future time when the businesses are more desirable.
Third, Mr. Benmosche knows that it's not a bad thing for an insurance company to have a securities distribution arm. If you're a product manufacturer it's good to have access to a sales force, even if they're independent reps who can sell anything they want, not just the products of their parent company. With
AIG's push to become a major player in the retirement business, having more than 2,000 reps to move the goods makes sense.
Fourth, I bet Mr. Benmosche gets a twinkle in his eye when he thinks about the behavioral patterns of the investing public and advisers. Both groups have little sense of history and an apparently limitless appetite for a good sales pitch.
To fix the public image, not a big problem for B-Ds, which are largely invisible to the public anyway, all Bob has to do to erase any
AIG taint is to change its name, especially to some modern-sounding concoction dreamed up by consultants. Notice the new, nifty Ally Bank? Until a few weeks ago it was dumb old GMAC. Watch
AIG vanish in the next couple of months. A few months after that, the public will not even remember what
AIG was.
Advisers will remember, but they won't care. Mr. Benmosche probably figures that if the
AIG B-Ds jiggle their payouts a bit, talk up how much everything has changed and then grab a few big teams from the competition, the buzz will be back. If that's his thinking, he's right. If an adviser knows someone who knows someone who just heard a great sales pitch from one of the
AIG firms — and the process happens often enough — the rosy new sales pitches soon become the firm's image. Beneath whatever hype is spun, the operational guts of the firms remain attractive since the three B-Ds use Pershing, which offers a platform that advisers like and is a lure for breakaway brokers.
For all those reasons, I have a feeling Mr. Benmosche just figures, hey, let's keep the brokerage businesses and see what happens. He can afford to roll the dice: his $7 million-a-year paycheck means that if his gamble doesn't pay off, he won't have to worry about his next mortgage payment.
