Did AIG Just Lose Its Title As Top Hedge Fund Darling?

One of the big headlines earlier this year involved American International Group's (NYSE: AIG  ) ascension to the top spot among hedge fund holdings. Knocking the reigning darling (Apple) from its top spot, the insurer was put back in the spotlight as it made strong headway in its recovery. But with the most recent quarter's 13F-HR filings showing that some hedge funds have exited their position in the company, is it safe to say that AIG's reign is over?

Making moves
Every quarter, investment managers with over $100 million in qualifying assets have to report their holdings to the SEC. It's in these reports that investors and analysts can tally the changes in holdings from period to period. As of year-end 2012, AIG was the top holding for hedge funds, with more coming on board.

But the most recent filings show that at least four prominent names on Wall Street have either significantly reduced their holdings or exited their positions in AIG completely:

Name	Q1 2013 Reduction	Ending Position
Soros Fund Management LLC	66%	2.89 million shares
ThirdPoint LLC	27%	13.5 million shares
Appaloosa Management LP	29%	4.3 million shares
Jana Partners LLC	100%	n/a
Moore Capital Management LP	100%	n/a

Source: Bloomberg. 

With names like George Soros, David Tepper, and Louis Moore Bacon taking money out of the insurer, some might think that it signals an end to the rally AIG has been enjoying so far this year.

Up 23.99% since the beginning of the year, AIG has certainly been on a good run. With its operations running smoothly, cost reductions pushing revenues through to the bottom line, and management carefully assessing their next moves, the company is almost back to full speed. But if the hedge funds are moving away from the company, that may signal their belief that the best has already been had.

Losing out
But if you look at AIG since the end of March, by which time the hedge funds had already cut their holdings, you can see that the stock has gained 18.31%. The company's stellar first-quarter earnings were largely responsible for that share price growth, and more is yet to come.

The company has yet to reinstate its dividend or announce a share buyback plan, both of which may be other reasons the funds bowed out. But with the company performing well and management assuring that those capital disbursements are in the works, it's a wonder the money managers would miss out just because they had to wait a bit longer.

With the stock still trading below tangible book value, some other big names in value investing have increased their holdings with AIG -- namely Bruce Berkowitz and Seth Klarman. Berkowitz has been invested in the insurer since before it was cool -- you might say he's the original AIG hipster -- with projections that the holding for his Fairholme Fund would quadruple in the next five to seven years. Klarman is the manager of Baupost Group LLC, a Boston-based hedge fund firm, who is also a value investor. Both increased their holdings of the insurer, along with BlackRock (the world's biggest asset management firm) and the Vanguard Group (the No. 1 U.S. mutual fund company).

In the end...
You need to believe in the investment thesis you've developed for AIG. Since the company is well on its way past recovery mode, if you think it's too late to join in on the gains, then you should make sure to reassess and act on your results. Otherwise, if you're invested in AIG, the upcoming dividend and share buybacks (though no timing is set in stone yet) may yield you further gains if you're patient. But since you're a Foolish long-term investor, that shouldn't be a problem, right?

At the end of last year, AIG was the favorite stock among hedge fund managers. Have they identified the next big multi-bagger, or are the risks facing the insurance giant still too great? In The Motley Fool's premium report on AIG, Financials Bureau Chief Matt Koppenheffer breaks down the key issues you need to know about if you want to successfully invest in this stock. Simply click here now to claim your copy, and you'll also receive a full year of key updates and expert analysis as news continues to develop.

A New, Slightly Different Robo-Signing Scandal

Robo-signing is in the news again, and in a big way. For one thing, the New York Attorney General's office is suing Bank of America (NYSE: BAC  ) and Wells Fargo (NYSE: WFC  ) for allegedly failing to follow the conditions of the $26 billion settlement over shabby foreclosure practices, which featured the mindless signing of foreclosure documents.

The second thing is just as odious: Banks have apparently been using the same robo-signing techniques in the collection of credit card debt -- and further investigation may find other credit card issuers are involved, too.

Robo-signing, "sewer service"
The Attorney General's office announced late last week that it is bringing charges against JPMorgan Chase (NYSE: JPM  ) for using a slew of illegal maneuvers to wring non-existent debt from at least 100,000 credit card users in California. Among the dastardly procedures used by JPMorgan, the AG's office alleges, are the famous robo-signing of fraudulent documents, while neglecting to notify targeted consumers of the fact that they were being sued -- a tactic known as "sewer service."

Regulators have been eyeballing JPMorgan for some time now, ever since the Office of the Comptroller of the Currency got wind of these shenanigans from former employees. Those involved noted discrepancies such as computer databases showing different card balances than the bank was alleging, and work of dubious quality by the outside attorneys used in the debt collection process.

Last summer, The New York Times published a story about this very issue, noting that Citigroup (NYSE: C  ) , American Express (NYSE: AXP  ) , and Discover Financial were also being scrutinized for similar behavior. The accounts of consumers being sued for amounts that they claim they do not owe are harrowing, particularly since the article notes that, in credit card cases at least, many defendants don't show up in court -- resulting in an automatic win for the credit card issuer. Considering the fact that JPMorgan is accused of being remiss in notification of these suits, it's no wonder consumers aren't defending themselves.

A far-reaching problem
Doubtless, this is just the tip of the iceberg, with sanctions against Citi, American Express, and Discover sure to follow. Bank of America is likely to get tagged, as well: American Banker noted early last year that B of A sold credit card debt acquired with its MBNA purchase to a collection agency back in 2009 and 2010, even though there was evidence that the debt had dicey paperwork attached.

The U.S. Census Bureau estimated that approximately 160 million citizens used credit cards last year, and Nerdwallet notes that indebted households chalked up over $15,000 of their overall debt to credit cards. Obviously, this type of problem has the potential to touch many more consumers than did the mortgage fraudclosure scheme.

Banks aren't doing a very good job of regaining Americans' trust, and this brewing scandal certainly won't help. I would include investors in that group, as well, as many might feel increasing discomfort with the notion that some of their bank's profits are acquired in this manner. I know I would.

Wells Fargo's dedication to solid, conservative banking helped it vastly outperform its peers during the financial meltdown. Today, Wells is the same great bank as ever, but with its stock trading at a premium to the rest of the industry, is there still room to buy, or is it time to cash in your gains? To help figure out whether Wells Fargo is a buy today, I invite you to download our premium research report from one of The Motley Fool's top banking analysts. Click here now for instant access to this in-depth take on Wells Fargo.