The Lunacy Surrounding AIG's Stock Price

American International Group (AIG) is a $50 stock. Yeah. Sure. But that’s what the market says it is today so it must be.

Shares of AIG were soaring yesterday in part because the insurer’s new CEO Robert Benmosche told a Reuters reporter that he doesn’t intend to conduct a firesale of the company’s divisions. He also said he’s been seeking guidance from former AIG CEO Hank Greenberg–the former Wall Street titan who just doesn’t know when to go away.

This is a great scoop for my Reuters colleague Adam Tanner. But come on. In my book, a CEO who jets off for a vacation to the Adriatic coast to a massive villa just days after taking over AIG doesn’t have a lot of credibility. So nice of Benmosche to take time out from his Croatian siesta to field phone calls from a reporter and reportedly wine and dine Greenberg.

At midday yesterday, the stock was up nearly $11. Nearly 92 million shares had been traded already–more than four times the normal trading volume.

And it’s nearly doubled since AIG conducted a 1 for 20 reverse stock split in July. Shares have risen 71% since Benmosche took over on Aug. 10. Over the past two weeks, it’s been quite common for more than 100 million shares to change hands each day.

But does that “news” coming out of AIG really justify a nearly 30% pop in the stock on higher than normal volume? (There is some speculation of Greenberg putting together a bid to buyout AIG, but it is too ludicrous to repeat.)

What’s going on with AIG is more than just short covering, or mere speculation. It was easier to speculate in AIG when it was down in single digits–not at these levels.

It seems AIG has become a big momentum play for daytraders, hedge funds and of course–high-frequency traders.

To be sure, the surge in AIG shares is great news for the federal government, which effectively owns the insurer that needed a mega emergency bailout last fall. But what’s going on in AIG shares is beyond the pale and really calls for some sort of investigation, in light of the federal government’s big hand in managing the company.

This surge in AIG is making a mockery of the federal government’s intervention in the insurer and makes it appear that Wall Street has learned nothing from last fall’s events.

What a great way to mark the upcoming anniversary of Lehman Brothers’ collapse.

Comments

[jamieentrikin]

If you divide AIG's near $50 share price by 20 you'll arrive at a pre-reverse-split equivalent price of $2.50. In what way is this outrageous?

2009 Aug 28 03:39 AM

[enigmaman]

Fed gov has been very quiet about the action of it positions in AIG, BAC, Citi,Fannie, Freddie because its working in their favor, they are against any and all so called Wall Street shenanigans except when it is in their favor then they are silent, they cut a deal with GS, do your worst so we can do our best, pump so we can dump, its always about the bottom line

2009 Aug 28 07:11 AM

[youngman442002]

shenanigans..that is exactly what the Federal government is doing....they with Goldman Sachs and all the other banks they own are now fluffing up AIG so they can sell out .....its a scam...AIG is not worth what the stock price is..is GS computer making it go up and up to make Obama look good....we don´t know anything about what AIG still has but we do know what people will pay for some of the divisions..and it is nowhere near enough to pay back the government...

2009 Aug 28 07:20 AM

[User 182388]

Not sure if you are trying to make more of a point that independent momentum traders are the reason for the rise in the stock, or that or that the federal government is pushing up the stock, as they seem fairly mutually exclusive. I'm in no position to value this company, but the market cap at the close yesterday was 6.44B. It seems odd that the government would be pulling 'shenanigans' as youngman442002 mentioned for just a few billion dollars.

2009 Aug 28 09:18 AM

[Tony Petroski]

The chart action shows the stock selling off right after the announcement of the 1 for 20 split around July 1. That action bottomed out 10 days later. Since then there was a recovery to about the level before the 1 for 20 split. At that point, roughly $28-29 a share, momemtum trading pushed the stock to its present level, about $54 (you have to check constantly to see/write about the "present level").

The chart suggests a correction back to $28/29 soon. Is that fair value for the stock? We can say for sure that the new CEO has little to do with this action.

Disclosure: Bought AIG one minute ago, sold it just before hitting the "publish" button, so I guess that means: "none."

2009 Aug 28 10:25 AM

[manya05]

It is just that all the gamblers..er..market participants...all decided to move to the AIG table today, by the time the government checks out the deck of cards they will have moved to another table....wait a minute, who's that at that table shooting crap? the government itself? of course, they are a big shareholder now. Dream or nightmare?

2009 Aug 28 01:53 PM

[tunaman4u2]

I have to agree with Jamie... look at Vonage or FRE etc... Something aint right... go ahead & play hot potato but thats all this is... nothing more


On Aug 28 03:39 AM jamieentrikin wrote:

> If you divide AIG's near $50 share price by 20 you'll arrive at a
> pre-reverse-split equivalent price of $2.50. In what way is this
> outrageous?

2009 Aug 28 02:51 PM

[Michael Clark]

I'm not sure they are mutually exclusive. I think the government and the banks they bailed out are now working hand-in-glove to try to turn the bailed out banks into some kind of brilliant investment...so Obama can go before the American public and say: "Paulson and his band of jolly bankers DID NOT rob the American Treasury of $500 billion dollars -- they just invested that money for us. We're going to make a profit...!"

I know, at this point it seems like 'conspiracy theories' or 'circumstantial evidence'. But this rally feels like that fixed Cassius Clay Sonny Liston championship fight back in the early 60's. You don't have to prove it to know its true.

Also, I'm suspicious that the bailout funds also carried a footnote: no more short-selling stocks until the economy recovers....something like that. So this stock market just grinds higher and higher. It feels fixed to me. Like the casino is trying to make everyone who plays feel like a winner. For the sake of 'consumer confidence'.

I've never felt like the market was being manipulated like this. And those manipulating it all agree: it's for a good cause. For the salvation of capitalism. That makes everything easy to do. The bubble gets bigger. Hell, we all want to live in a bubble anyway, don't we?


On Aug 28 09:18 AM User 182388 wrote:

> Not sure if you are trying to make more of a point that independent
> momentum traders are the reason for the rise in the stock, or that
> or that the federal government is pushing up the stock, as they seem
> fairly mutually exclusive. I'm in no position to value this company,
> but the market cap at the close yesterday was 6.44B. It seems odd
> that the government would be pulling 'shenanigans' as youngman442002
> mentioned for just a few billion dollars.

2009 Aug 28 03:04 PM

[Michael Clark]

Isn't that Ben Bernake running the Blackjack Table? And Little Timmy Geithner over there haranguing little old ladies in the Bingo ring. Where's Obama? Did Paulson sneak in here again? Is he still running the Goldman Sachs' Church Raffle? God, this is going to be FUNNNNN!


On Aug 28 01:53 PM manya05 wrote:

> It is just that all the gamblers..er..market participants...all decided
> to move to the AIG table today, by the time the government checks
> out the deck of cards they will have moved to another table....wait
> a minute, who's that at that table shooting crap? the government
> itself? of course, they are a big shareholder now. Dream or nightmare?

2009 Aug 28 03:08 PM

[Tack]

You don't need to examine facts, fundamentals, outlook or the benefit of all that government investment to assess share-price movements; you just need to know it's "Evil AIG." If it's going up, it must be wrong, unfair, ungodly, conspiratorial, insane.......

Mommie, make it stop!


On Aug 28 03:39 AM jamieentrikin wrote:

> If you divide AIG's near $50 share price by 20 you'll arrive at a
> pre-reverse-split equivalent price of $2.50. In what way is this
> outrageous?

2009 Aug 28 10:25 PM

[Peter Daskaloff]

Alright, let's see which are the best performing stocks lately, say since July 10.

-- STOCKS UP 100% OR MORE SINCE JULY 10 --

From the financials we can pick --

AIG, C, FRE, FNM, and LEH (yes, Lehman Bros) which went up 200% from $0.05 to $0.15 today.

Then come the commercial real estate (REIT's) --

MAC, DDR, CBL, to name a few big names, and of course wouldn't you guess it, The General Growth Properties which went bankrupt in the spring is now up 100%

Then come the home builders, whose stocks are up as if everybody's gonna buy a house for Christmas --

HOV, LEN, CBL, and SPF to name a few.

Yes, indeed, the market appears to be getting ready for Lehman's anniversary festivities and celebrate it with a BANG!


.

2009 Aug 28 10:49 PM

[Suncatcher]

The bailouts are to financials what steroids are to athletes. The minute you stop indulging you will end up below the starting point.

2009 Aug 29 02:43 AM

[Dan Schmeidler]

Good article. Irrelevant of the fact that the government (more or less) owns these entities, the short covering (in FNE, FRE, AIG, C, etc.) is generating additional tax revenues (when received) for next year. And speaking of anniversary, for securities held for less than 1 year, the revenues, when received, will be even higher. So I don't really see why the Feds should regard this process as mockery, or stop the trading of these companies and/or delist them.

In addition (and aside from insignificant tax revenues), the price move of these equities is signaling (a perception) that equities owned by the Feds/Government can appreciate in capital. This is a notion that would have been unfathomable a few years ago. But these are different times, and for right now, ailing/defunct government entities are the stocks to own. This type of action in equities is a clear indication of a bubble formation (it's not the first, - nor will it be the last), and the Feds are unlikely to stop this process since they the direct beneficiary of this kind of appreciation. In addition, the Feds might regard this type of action (in equities) as inflationary side effects to their monetary policies. And they will likely tend to keep it contained to equities. I figure, we will have a lot more of this type of action coming in the next few weeks and months.

2009 Aug 29 01:56 PM

[Nettligent]

Kudo to new AIG CEO Robert Benmosche...Keep going..!!

2009 Aug 29 04:07 PM

[Mark Bern]

You're forgetting General Motors and its sister Motors Liquidation, both of which have doubled since mid-July. Of course they may not haven't had the same high volume as of late as the financials. But still, the is impressive and the government is making money there, too. At least, for the time being. Somehow, I don't think any of this will last all the way into the 2010 elections. It just isn't sustainable. The market would have to more than double from the March lows even if the rate of climb slows substantially. Markets just don't make 100% moves in just 20 months. I don't even think it can make a move of that magnitude "with" manipulation.

Of course, this time it's different. How many times have I heard that one?

2009 Aug 29 10:25 PM