Recent Public Announcement
On January 14th, 2011, AIG announced that it fully repaid the debt it owed to the Federal Reserve Bank of New York. The full amount owed to the bank was approximately $ 21 billion. The announcement was a good sign that the company was recovering progressively from its financial crisis that had threatened its existence. Such an announcement is likely to enhance stockholder value because investors are likely to invest in the company (Markham, 2011). Consequently, the company's financial position would improve, which may increase the amount of money paid out to shareholders. Therefore, the announcement was a good sign that the shareholder value could improve.
On 31st July, 2012, AIG acquired Woodbury Financial Services. The acquisition promoted the growth of AIG's Life and Retirement Advisor Group, which is among the largest independent broker-dealers in the country. The acquisition added about 1400 advisors to AIG's Life and Retirement Advisor Group and assets worth $ 25 billion (Cavusgil, Knight and Riesenberger, 2012). Woodbury is known for its unique value proposition and high quality advisors. The acquisition is part of the company's effort to reach out to as many customers as possible and penetrate various market segments. By acquiring Woodbury, AIG increased its asset value by 25 billion dollars. These assets have been tested and proved to be worth using. Therefore, the company has an advantage by acquiring the assets because they will earn returns for the company faster than new untested assets.
Operations' Expansion and New Products
After AIG emerged from its financial crises, it has been able to shake off significantly some of the negative effects of the crisis. In 2012, the company expanded its operations to China, where it partnered with PICC Group. As at the first quarter of the financial year, the company had already earned 10% returns. In addition to expanding to new geographical segments, AIG has focused on the emerging middle class who might be seeking insurance products for the first time. This move goes beyond the original casualty and property lines the company had initially focused on. These new products aim to drive the company's growth strategy.
Effects of Financial Crisis on AIG
Like other organizations, AIG was not spared by the recent financial crises. The financial crisis of 2007 and 2008 saw AIG go into a liquidity crisis (Lewitt, 2010). The company ran out money, and its shares' value fell drastically. By September 2008, the company's share value had declined by 95%. The company was, therefore, not able to meet many of its obligations. Some of the activities that led the company to the crisis was the imbalance between risks, profitability, and growth. The company took big risks that were not insured. When the financial crisis struck, the company was vulnerable.
As a result of the company to meet most of its obligations, the government intervened through the federal reserve bank. The bank was instructed to create a credit-liquidity facility that would allow AIG to draw money up to a tune of $85 billion (Barofsky, 2012). For this loan, the bank used the company's assets as collateral and stock. In addition to this bailout, the government purchased the company' newly issued senior preferred stock at a value of $ 40 billion. Moreover, the government extended the life of the credit facility provided by the Federal Reserve Bank of New York from three to five years.
Policy Change on Executive Compensation
Since AIG was bailed out using tax payers' money, a controversy arose regarding high compensation for the company's executives. The company was under pressure to review its compensation policy (Farr, 2011). As a result, the company designed a clawback strategy that enabled it to recall all the compensation received by its executives up to one year that led to a wrong doing or lack of accountability.