Market Losing Patience with AIG

AIG is having another terrible day. Markets certainly aren’t being patient with the New York-based American International Group (AIG). Despite the company's announcement of new strategic plans set to be introduced Sept. 25, the insurer’s shares continue to sink aggressively lower. The company's stock has fallen 25% in less than a week while the cost of insuring against default has risen beyond that of Lehman Brothers (LEH).

According to Phoenix Partners Group, AIG’s credit-default swaps have exploded. Today it costs $1.2 million, along with $500,000 annually, to protect $10 million in bonds against default, compared with $680,000 on Thursday.

AIG’s meltdown started earlier this year as the firm warned investors about unrealized losses on credit default swaps linked to subprime mortgages. The write-downs on these investments are more than $23 billion, leaving the co. negative by a cumulative $18 billion over the past three quarters.

If the management, notes WSJ, fails to act by not dismantling the firm, which would include selling its 59% stake in Transatlantic Holdings or divesting itself of asset manager AIG Investments AIG Direct, its stock value will further deteriorate as the insurer could face a ratings downgrade, forcing it to post at least $10 billion more collateral with counterparties and prompting a further capital call.

Citigroup lowered their AIG target today to $25.50 from $40, citing marketplace fears over the insurer’s financial condition.

Update: Bloomberg is now reporting AIG may announce a turnaround plan before the previous deadline of Sept. 25. The plan may include selling assets, raising capital and restructuring the company. AIG today closed down 5.41, or 30.83%, to 12.83.

Disclosure: None

Comments

[E Nuff Sed:]

Mr. Market is going vaporous again for no good reason - there is no news. There is obviously a negative feedback loop of great intensity. The CDS spread is linked to the decline in the stock price and vice versa. The shorts are having a field day.

In times like this, there is a grand re-ordering of the share holder base --- money flows from weak hands to strong.

I am long AIG - and losing my shirt.

2008 Sep 12 06:43 PM

[BSCLossMan:]

Hold on. I think AIG will triple from here in 3 years. The drop is primarily due ot shorting the stock. I'm not saying AIG doesn't have problems, but it's not like LEH or BSC or WM. It has tremendous assets and great businesses. While the fed is trying to stablize markets, the SEC made a terrible mistake allowing naked shorts. They should be stopped, period, for all stocks, and for all time.

2008 Sep 12 07:25 PM

[Mr. Math:]

Eliot Spitzer - resigned in disgrace.

AIG - down 82% from the 2005 peak.

The fates have not been kind to those who dethroned Hank Greenberg.

2008 Sep 12 08:25 PM

[E Nuff Sed:]

The immediate short term risk is "Dilution" - Last time AIG raised capital at $38 per share - this time it could be $10.

Greenberg had built a house of cards!

2008 Sep 12 08:50 PM

[banval:]

Can't AIG reinsurer blocks of business to raise capital? NO DILUTION

2008 Sep 12 09:53 PM

[261133:]

I agree, the drop is because of shorting the stock, but as far as I know naked shorts are illegal. So why aren't there thousands of investigators out there and arresting every single crook on Wall Street. Instead of rounding up poor illegals in sweatshops the Fed's should round up the Goldman Sachs, Merryl's etc.

2008 Sep 12 10:42 PM

[Big Al45:]

The hedge funds are responsible for this. Lehman and WaMu this week, AIG and Merril next week, Citi and Wachovia the following week.

2008 Sep 13 12:13 AM

[williambanzai7:]

I am totally perplexed and confused

2008 Sep 13 07:36 AM

[Gerry Sullivan:]

"Triple pillar of the world transformed into a strumpet's fool." The quote from Shakespeare is a perfect summation of the situation at Lehman, AIG and Merrill Lynch.

The "strumpet" was the allure of huge, easy profits from various fixed income "new paradigms."
Sub prime and Alt-A mortgages. Collateralized Debt Obligations. Credit default swaps.

The fool?

2008 Sep 13 09:02 AM

[jbortho:]

What will happen to all the 401k Money invested with AIG Valic?

2008 Sep 13 11:02 AM

[williambanzai7:]

AIG had better take this situation seriously. They have been running on mulligans since their CEO lied to the market last December. Here we are billions later.

2008 Sep 14 12:03 PM