Jul 9, 2009
AIG $180 b down the tube | Reuters
American International Group Inc AIG.N, the insurer rescued by a series of federal bailouts, may have zero equity value due to the risk of more credit default swap losses and the disposal of key assets at low valuations, Citigroup said.Shares of the company fell 22 percent to $10.22 in early trade Thursday on the New York Stock Exchange. The shares have lost more than 90 percent of their value in the last year.Potential markdowns in AIG Financial Product units regulatory CDS portfolio may result in collateral calls that would again put pressure on AIGs liquidity, Citigroup analyst Joshua Shanker said.”Such collateral calls could also pressure rating agencies to lower their credit ratings for the company, leading to a similar cycle to the one that the company experienced prior to the massive government intervention in the third quarter,” Shanker wrote in a research note.Last month, AIG revised its 2008 annual report to add a new risk factor that shows it may recognize valuation losses on a CDS portfolio if credit markets continue to deteriorate.At issue is a super senior CDS portfolio held by AIG Financial Products with a notional value of $192.6 billion as of March 31, 2009.Shanker said despite AIGs efforts in implementing the action plan devised in concurrence with the U.S. government, the uncertainty and risk surrounding AIG remain very real, and, in some ways, more urgent.The analyst cut the price target on AIG stock to $14 from $36 to adjust for a 1-for-20 reverse stock split by the troubled insurer, and kept a “hold” rating.Once the worlds largest insurer by market value, AIG nearly collapsed last year because of losses from CDS, a bet on the credit worthiness of a debt issuer. The company is now selling assets to repay the government after a bailout totaling about $180 billion.
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