American International Group Inc. (AIG) will return funds to customers of its banking unit and shut their accounts as the Dodd-Frank Act places limits on insurers with deposit-taking units.
AIG Federal Savings Bank “will no longer be servicing retail deposit accounts as of Sept. 30,” according to a letter to customers. “All accounts will be automatically closed as of that date and any funds, including all interest due on your accounts, will be returned.”
AIG is joining Principal Financial Group Inc. (PFG) in narrowing its focus ahead of rules that limit proprietary trading and investments in private-equity or hedge funds by insurers with bank units. MetLife Inc. (MET), Hartford Financial Services Group Inc. and Allstate Corp. have sold deposits or retreated from banking as regulators increase oversight.
“AIG Federal Savings Bank is currently undergoing an orderly transition from a traditional savings bank to a trust only thrift,” Jon Diat, a spokesman for the New York-based insurer, said in an e-mail yesterday. Robert Benmosche, the chief executive officer of New York-based AIG, said last year that the insurer was weighing whether to shutter its bank to limit the effects of the Volcker rule. AIG is a savings and loan holding company, and some of the restrictions may apply to the company even if it ends its bank status, according to the insurer’s annual report.
The bank had 30 employees and $920.5 million in assets as of March 31, according to Federal Deposit Insurance Corp. data. The Wilmington, Delaware-based unit offered products including mortgages and certificates of deposit through its website and over the phone.
AIG, which offers property-casualty coverage, life insurance and investment products, had about $548.9 billion in assets as of March 31.
Principal agreed last month to sell $200 million of deposits from its bank unit and said it’s seeking to divest commercial loans to end its status as a savings and loan holding company. The Des Moines, Iowa-based insurer has said its bank will operate as a limited-purpose trust institution after the sales are complete and will continue offering individual retirement accounts.
Diat didn’t immediately respond to questions about AIG’s plans for its bank assets.
The Volcker rule, named for former Federal Reserve Chairman Paul Volcker, limits proprietary trading and investing in hedge funds and private equity. The rule contains an exemption for trading by insurers for their general accounts. As of March 31, AIG had $18.9 billion of alternative investments, a category that includes hedge funds and private equity, according to a document on the company’s website.
AIG’s banking role made the Office of Thrift Supervision its primary federal regulator prior to the financial crisis. The OTS said in 2009 that it “fell short” in its oversight of AIG and failed to recognize the risk of the firm’s credit-default swap portfolio. After the bets went against AIG, the insurer received a U.S. rescue that swelled to $182.3 billion. AIG repaid the bailout last year.
Most OTS functions have since been assumed by the Office of the Comptroller of the Currency. The Fed now oversees AIG, and the company’s insurance units are subject to regulation from state watchdogs.
AIG was designated as systemically important this month, a label that may subject the company to extra Fed oversight and tighter capital rules. The designation means regulators decided that the company could pose a threat to the financial system if it were to fail.
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