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zebra zebra: Did you miss the AIG boat, and are now simply trying to talk the stock down so as to buy it cheaper? Your conclusion totally contradicts the message in the article you cited. If Ackman, a notorious short-seller, suddenly loads up with AIG stock (as he did successfully with Wachovia) , what does this tell you? Cerainly not that you should 'sell' AIG. Maybe you didn't understand the article, so I'll repeat it below:

“Bill Ackman, who heads the Pershing Square hedge fund [and has been short financials for a long time] has switched gears, snapping up significant stakes in Wachovia and American International Group Inc.(AIG)—his first investments in financial institutions in five years. Mr. Ackman said he began acquiring a 180 million-share, or 9%, stake in Wachovia last Monday, after the North Carolina bank agreed to be acquired by Citigroup Inc. Since then, he’s had the good fortune to see his stake rise significantly after Wells Fargo & Co. trumped Citi’s (C) bid late last week.” (Crain’s NY Business, Oct. 6)

Sounds like a case of sour grapes to me.


On Oct 07 05:16 PM zebra zebra wrote:

> SELL!! AIG is DONE!!

AIG: Details of Its Punishing Bailout

By the way, before some people become over-exuberant at my posts, what some don't seem to have done is to have actually read the terms and conditions of the loan provided above, in which it clearly states that the Treasury is getting 79.9 % Preferred Stock, convertible into ordinary shares, in return for the loan. There is no mention of the Treasury's ceding or returning those shares once the loan is repaid. AIG will eventually belong 80 % to the Treasury and 20 % to the rest of us, so dilution should be taken into account.

However, after dilution our 20 % equity stake will have a net worth of $ 11/share based on the Credit Suisse estimate above.

So essentially this is a good long-term value play. (If the Treasury had been obliged to return its 80 % stake it would have represented the deal of the century at a current price of $ 3/share and a net worth above $ 50/share!!!).

AIG: Details of Its Punishing Bailout

2 more positive news items:

Ex-CEO Greenberg sold 40 million shares at an average price of $ 3.77, so the fact that the price is holding above $ 3 despite a massive physical offload mens it seems to have found a floor.

Second, "AIG may get $115 billion by selling all its units, Credit Suisse Group AG analyst Thomas Gallagher said in a Sept. 23 note. The company may need to sell more than half its businesses to repay the debt, he said.":

www.bloomberg.com/apps...

This means that the Credit Suise analyst thinks there's a $ 30 billion cushion even at fire-sale prices.

Am very happy to hear contrary views (Cramer thinks AIG is worth zero!), though I believe my own opinion in this turbulent period is in fact the one that's 'contrary' ;-)

AIG: Details of Its Punishing Bailout

And here is a generally psitive article in today's Business Week, suggesting that new CEO Liddy will sell off assets at top speed to reduce the interest payment, thereby reducing the Draconian effects of the Loan. Furtermore, numerous investors are waiting on the sidelines (including the German giant Allianz with $ 1.5 trillion in assets) to obtain a chunk of AIG, which means that either its assets will come positively into play or that suitors will obtain an equity stake similar to Buffet's in GS.. Either way, AIG is solvent even today, and the upside potential is enormous:

www.businessweek.com/m...

AIG: Details of Its Punishing Bailout

It seems nobody noticed one crucial and positive fact in the Loan Agreement, which is that AIG's extremely valuable and lucrative foreign subsidiaries are off-limits to the Treasury. These alone are worth well over $ 85 billion "under normal circumstances", which means that barring global financial Armageddon and the re-establishment of "normal circumstances" in 2 years' time the 20 % remaining sharehoder stake will be worth far more than the $ 1 it is worth today and, based on forward projections after repayment of the loan the 20 % stake should be worth minimum $ 10, and with unlimited upside potential in ensuing years when it could reach anywhere between $ 10 and $ 100. So at these prices AIG represents a cheap Call option with no expiry date!

Disclosure and strategy:

I bought a sizable stake in the $ 2.20 - 2.25 area (sold half my position at $ 4.90) and will re-purchase on any further pullback that will solidify the long term technical base. I will keep selling half the position at $ 5.00 (= below the double top) and keep the remaining half as a long term investment.

Since I expect this extremely volatile stock to keep bouncing between $ 2 and $ 5 for the foreseeable future I expect to gain several $ 100 % gains while waiting for the stock to eventually break out.