<TABLE cellSpacing=0 cellPadding=0 width=452 border=0><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published September 13, 2008
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Fearing further losses, investors turn on AIG
CEO expected to unveil a master plan on Sept25 to turn the company around
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(New York)
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</TD></TR><TR class=caption><TD>RISKY DEALS
AIG has effectively guaranteed financial instruments tied to home loans whose values have plunged</TD></TR></TBODY></TABLE>INVESTORS skittish about further losses in the financial industry have pounced on American International Group (AIG), the insurance company that has reported some of the biggest losses in the spreading credit crisis.
With Lehman Brothers running out of options this week, investors fear that AIG will face billions in additional losses because it has effectively guaranteed complex financial instruments tied to home loans whose values have plummeted.
If so, it too could need to raise capital, which mortgage-finance giants Freddie Mac and Fannie Mae, and Lehman have demonstrated can be a vexing problem in the current market environment.
The company's chief executive, Robert Willumstad, is expected to unveil a master plan on Sept 25 to turn the company around, but investors are increasingly impatient.
Lehman also had promised to deliver a plan in a couple of weeks, but was forced to make an announcement this week in what proved to be an unsuccessful attempt to reassure investors.
AIG stock lost nearly a fifth of its value on Tuesday as investors watching the Lehman drama focused on others that might have to raise money.
Since Mr Willumstad took over in June, succeeding Martin Sullivan amid mounting losses, the stock has fallen nearly 50 per cent.
Stocks rallied broadly at the end of trading in New York on Thursday, with investors relieved that a deal for Lehman and perhaps even one for Washington Mutual, the troubled savings and loan, appeared to be in the works. AIG shares gained five cents to close at US$17.55.
AIG's valuation has fallen to about US$47 billion from roughly US$175 billion a year ago, leaving it trailing companies such as AXA SA, with a market value of about US$65 billion, according to Reuters data. AIG started the week with a market value in excess of US$60 billion.
Red ink has been flowing at AIG. It reported a loss of US$5.3 billion for the second quarter, after a US$7.8 billion loss in the previous quarter.
The main problem is sophisticated contracts, called credit default swaps, that AIG's financial products unit sold to investors.
The contracts allow buyers to bet on the creditworthiness of debt obligations backed by mortgages. As home values have fallen, the values of those underlying mortgages have declined. AIG has had to reduce the value of the swaps on its books.
Mr Willumstad declined to comment on AIG's stock price on Thursday, but a company spokesman, Nicholas Ashrooh, said market pressure would not speed up the new business plan.
A sliver of good news came on Thursday when AIG announced a US$115 million settlement of a lawsuit filed by shareholders on behalf of the company.
AIG is to receive US$85 million in insurance payments covering its directors and officers, and US$29.5 million from four former officers. The company sells insurance to 74 million customers from operations in more than 130 countries and territories. NYT, Reuters
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</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Fearing further losses, investors turn on AIG
CEO expected to unveil a master plan on Sept25 to turn the company around
<TABLE class=storyLinks cellSpacing=4 cellPadding=1 width=136 align=right border=0><TBODY><TR class=font10><TD align=right width=20>
</TD><TD>Email this article</TD></TR><TR class=font10><TD align=right width=20>
</TD><TD>Print article </TD></TR><TR class=font10><TD align=right width=20>
</TD><TD>Feedback</TD></TR></TBODY></TABLE>(New York)
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</TD></TR><TR class=caption><TD>RISKY DEALSAIG has effectively guaranteed financial instruments tied to home loans whose values have plunged</TD></TR></TBODY></TABLE>INVESTORS skittish about further losses in the financial industry have pounced on American International Group (AIG), the insurance company that has reported some of the biggest losses in the spreading credit crisis.
With Lehman Brothers running out of options this week, investors fear that AIG will face billions in additional losses because it has effectively guaranteed complex financial instruments tied to home loans whose values have plummeted.
If so, it too could need to raise capital, which mortgage-finance giants Freddie Mac and Fannie Mae, and Lehman have demonstrated can be a vexing problem in the current market environment.
The company's chief executive, Robert Willumstad, is expected to unveil a master plan on Sept 25 to turn the company around, but investors are increasingly impatient.
Lehman also had promised to deliver a plan in a couple of weeks, but was forced to make an announcement this week in what proved to be an unsuccessful attempt to reassure investors.
AIG stock lost nearly a fifth of its value on Tuesday as investors watching the Lehman drama focused on others that might have to raise money.
Since Mr Willumstad took over in June, succeeding Martin Sullivan amid mounting losses, the stock has fallen nearly 50 per cent.
Stocks rallied broadly at the end of trading in New York on Thursday, with investors relieved that a deal for Lehman and perhaps even one for Washington Mutual, the troubled savings and loan, appeared to be in the works. AIG shares gained five cents to close at US$17.55.
AIG's valuation has fallen to about US$47 billion from roughly US$175 billion a year ago, leaving it trailing companies such as AXA SA, with a market value of about US$65 billion, according to Reuters data. AIG started the week with a market value in excess of US$60 billion.
Red ink has been flowing at AIG. It reported a loss of US$5.3 billion for the second quarter, after a US$7.8 billion loss in the previous quarter.
The main problem is sophisticated contracts, called credit default swaps, that AIG's financial products unit sold to investors.
The contracts allow buyers to bet on the creditworthiness of debt obligations backed by mortgages. As home values have fallen, the values of those underlying mortgages have declined. AIG has had to reduce the value of the swaps on its books.
Mr Willumstad declined to comment on AIG's stock price on Thursday, but a company spokesman, Nicholas Ashrooh, said market pressure would not speed up the new business plan.
A sliver of good news came on Thursday when AIG announced a US$115 million settlement of a lawsuit filed by shareholders on behalf of the company.
AIG is to receive US$85 million in insurance payments covering its directors and officers, and US$29.5 million from four former officers. The company sells insurance to 74 million customers from operations in more than 130 countries and territories. NYT, Reuters
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