Too Many Unanswered Questions for AIG

Includes: AIG, PUK
by: Mark Riddix

After losing $8.9 billion in the last quarter of 2009, AIG is finally selling off major assets and attempting to pay back the government’s huge investment in the insurance giant. AIG (NYSE:AIG), which lost $61.7 billion in one quarter last year and has received over $182.5 billion in government financing is selling AIA Group to British insurance company Prudential (NYSE:PUK) for $35.5 billion dollars. AIG will receive $25 billion in cash and $10.5 billion in securities.

AIA Group is an Asian insurance company whose services include life insurance, retirement planning, wealth management, accident, and health insurance. The federal government currently owns 80% of AIG and large stakes in AIA. AIG is attempting to unwind its businesses by selling off its most valuable non-core assets and repay the government’s loans.

Despite AIG’s stock currently trading at $25.82, it is impossible to determine the value of AIG shares because there are too many unknowns. What is the value of AIG’s non-core assets? How much earning power will the company’s core assets have going forward? What are the derivatives in the Financial Units portfolio worth? How long before the firm returns to profitability? Will the government be able to unload its 80% stake without causing the stock to plummet? Until these questions are answered AIG is a stock that you should avoid.