Analysts said that American International Group Inc.'s agreement to buy most of Popular Inc.'s U.S. consumer finance loan portfolio could be the first of several deals as the world's largest insurer "opportunistically" bulks up its consumer finance business.
Alan Devlin, an analyst at Atlantic Equities, said the New York insurer has accumulated $20 billion of excess capital and wants to do deals after spending the past 18 months on the sidelines in the consumer finance business.
"There are going to be plenty of opportunities like this to acquire cheap assets while other companies are under pressure to divest these types of businesses," he said.
Peter Tulupman, a spokesman for AIG, said American General Finance, an AIG consumer lending unit based in Evansville, Ind., will add $1.48 billion of loans when the deal for a substantial portion of Popular's Equity One consumer branch loan portfolio closes early this year.
Equity One's book of real estate, home improvement, and unsecured loans will be added to American General's book of loans, which accounted for $24.8 billion of AIG's total of $29.1 billion of loans at Sept. 30.
American General, which AIG bought in 2001, offers consumer lending, mortgages, home equity lines of credit, and insurance for credit fraud. Mr. Tulupman said that Equity One does not offer any product that American General does not. "This deal is all about adding scale," he said.
American General has the option to retain an unspecified number of Equity One's 132 branches, most of which are in the Middle Atlantic region where American General — which has 1,550 offices in 45 states, Puerto Rico, and the U.S. Virgin Islands — already has branches. Mr. Tulupman said the company has not decided what to do with Equity One's branches.
Analysts said, despite the fact its stock has declined 25% in the past year because of market volatility sparked by the subprime mortgage crisis, AIG has spent recent months looking to exploit the opportunities created by the housing slump.
An analyst who requested anonymity said AIG's entire consumer finance arm is a relatively small piece of the parent's business — it accounted for $80 million of AIG's $3.4 billion of earnings in the third quarter and $400 million of its $16 billion of earnings in 2006. The company gets 85% of its earnings from its core insurance businesses.
"They will make more deals," Mr. Devlin said. "Strategically, this is a very complementary business that can easily be absorbed by American General to expand their business."
Richard L. Carrion, Popular's chairman and chief executive officer, said in an interview Wednesday, "This business became increasingly more difficult to fund. It's a good business, and it'll be a great deal for American General." (See story
He said that Frederick W. "Rick" Geissinger, American General's chairman and CEO, "had talked to me about five or six years ago about acquiring the company back then, so they knew the company, and they knew the people. In a different market we would probably gotten a higher price, but it is what it is."
