12 September 2008

Dow Industrial Component AIG Getting a Share-Cut

Probably the most overlooked story of the day is the implosion of insurance giant AIG. The probable reason for this is their exposure to mortgage related insurance AND their CDS exposure to failures in the corporate bonds markets.

There are rumours swirling of some major failures that are imminent. And the Fed and Treasury cannot backstop them all.

AIG shares fall almost 30 percent on mortgage worries
September 12, 1:33 pm ET

NEW YORK (Reuters) - Shares of American International Group Inc fell almost 30 percent on Friday as investors grew increasingly concerned that its large exposure to mortgages is backing it into a corner. (That's not a corner, that's the edge of a cliff - Jesse)

The large global insurer, a component of the 30-stock Dow Jones Industrial Average index saw its shares fall as low as $12.40 in trading on the New York Stock Exchange, 29 percent off the prior's day close, before easing back to $12.53.

The stock has fallen more than 70 percent since it earlier this year warned investors that it could be hit by large, unrealized losses on credit default swaps it wrote to guarantee securities linked to subprime mortgages.

Since, the insurer has taken write-downs on these investments totaling about $25 billion, leaving it in the red by a cumulative $18 billion over the past three quarters.

"We attribute this (the share fall) to concerns about AIG's ability to shed its troubled mortgage-related assets and we expect the shares to remain volatile as investors await news from the company," said Standard & Poor's analyst Catherine Seifert, in a research note on Friday.

Citigroup analyst Joshua Shanker, in a research note, said he was cutting his target price for the stock to $25.50 a share from $40, citing marketplace fears over the insurer's financial condition. (Is this the same Citigroup analyst that had buy ratings all the way down on Fannie? Speaking of ratings, did you know that not one analyst has had a sell on LEH, even now? - Jesse)