Investors Jittery About AIG's Subprime Exposure

Shares of American International Group, the biggest insurer in the world, fell up to 6% intraday Wednesday on analyst concerns about the extent of its exposure to the subprime mortgage market. Goldman Sachs issued a report estimating AIG's losses at up to $1.4 billion. Citigroup analyst Joshua Shanker said AIG could lose $0.82 per share for each $10 billion invested, representing a loss of $8.5 billion. AIG's shares have fallen over 8% since late June on fears that its earnings will be affected by the decline in value of its subprime mortgage-backed holdings. AIG has not disclosed those holdings, stoking investor anxiety. Some analysts believe AIG is unlikely to suffer badly even if its exposure is significant. "Even in a worst-case scenario, we think AIG's subprime mortgage losses would be manageable," wrote A.G. Edwards analyst Paul Newsome. He argued that even if 10% of AIG's estimated $35.7 billion subprime exposure goes bad, the company will have losses of $3.6 billion, or $2.3 billion after taxes -- about 13.5% of what he expects AIG to generate in operating earnings in 2007.

Sources: Bloomberg, Reuters, MarketWatch, AP
Commentary: Is This the Bottom for Submerging Prime? • American International Group: Bigger is Better - Especially When It's Cheap • Municipal Bonds: How Issuers Manage Temporary Investments
Stocks/ETFs to watch: AIG. Competitors: AZ, AXA. ETFs: DRF, EWQ

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