<TABLE border=0 cellSpacing=0 cellPadding=0 width=452><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published September 1, 2009
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>NEWS COMMENTARY
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>From the brink to market darling
Speculators are behind the fivefold rise in AIG's shares in just two months
By DAVID PAULY
<TABLE class=storyLinks border=0 cellSpacing=4 cellPadding=1 width=136 align=right><TBODY><TR class=font10><TD width=20 align=right>
</TD><TD>Email this article</TD></TR><TR class=font10><TD width=20 align=right>
</TD><TD>Print article </TD></TR><TR class=font10><TD width=20 align=right>
</TD><TD>Feedback</TD></TR></TBODY></TABLE>
(NEW YORK) THE company that almost shattered the world financial system with its reckless sale of credit default swaps has suddenly become a stock market darling. Go figure.
<TABLE class=picBoxL cellSpacing=2 width=100 align=left><TBODY><TR><TD>
</TD></TR><TR class=caption><TD>Mr Benmosche: Investors liked his talk about paying off the govt and biding his time on selling assets until market prices recover -- <COPYRIGHT>REUTERS </COPYRIGHT></TD></TR></TBODY></TABLE>Shares of American International Group have more than quintupled in the past two months. The stock closed last week at US$50.23, up from US$9.48 on July 9 and up 53 per cent for the week.
Can Robert Benmosche, who was named AIG's fifth chief executive in four years on Aug 3, be that good? Hardly. AIG is still the company that failed to make good on swaps that insured investors against defaults on securities tied to sub-prime mortgages and had to be rescued by the US government to the tune of US$182.5 billion.
This is still the outfit whose reputation has also been blackened by an accounting scandal. A company that has to sell chunks of its life and casualty insurance and leasing assets to pay off its government loans - but gets few takers.
And a company that admits its bad name has slowed the sales of its investment products.
Speculators have glommed onto every snippet of good news from AIG. Their enthusiasm pushed the stock higher, forcing short- sellers to buy the stock, helping the rally along.
Those who had sold the shares short, betting on a decline, had to buy the stock to close their positions.
AIG is undoubtedly working in a better environment. Government intervention has saved the banking system along with AIG. The US economy, which fell one per cent in the second quarter, is improving.
The company reported a profit of US$1.82 billion, or US$2.30 a share, for the second quarter, after six quarters of red ink and total losses of more than US$100 billion.
Mr Benmosche, 65, comes to a thankless job with the right resume. He was CEO of MetLife Inc, the largest US life insurer, until 2006 and oversaw its conversion to a stock from a mutual company. AIG is paying him US$7 million a year plus US$3.5 million in long-term incentives. The new CEO has been running AIG - or at least giving interviews on his plans for the insurer - from Croatia, where he's been on vacation.
Investors liked his talk about paying off the government and biding his time on selling assets until market prices recover. So far, AIG has raised only US$9.3 billion from divestitures.
One leg of AIG's stock rally came when Mr Benmosche said he hoped to benefit from the advice of Maurice Greenberg, who ran AIG for 38 years before being ousted in 2005. Letting the fox nudge back into the hen house? In July, Mr Greenberg, without admitting wrongdoing, agreed to pay a US$15 million fine to settle US claims that he had manipulated AIG earnings.
Mr Benmosche, so far, doesn't seem to realise that AIG is really run by the government, which bailed out the company and owns almost 80 per cent stake.
He says the government has done everything wrong at AIG and that he only took the job - after declining it three times - to make a statement about capitalism. He has told AIG employees not to be intimidated by regulators and says he will let the company's new chairman, former American Express Co CEO Harvey Golub, deal with government officials.
While AIG's rally may not make sense, American taxpayers can be happy. Their share of AIG's market value is now about US$5.4 billion. Shares of Fannie Mae and Freddie Mac, also controlled by the US government after the sub-prime debacle, have been rising too. After languishing at less than a buck for months, Freddie Mac closed last week at US$2.40.
AIG may look richer than it really is because of a 1-for-20 reverse split of its shares in June. Without that, the stock would have closed last week at US$2.51.
It's hard to know what motivates people speculating in AIG. Maybe they're the same folks who bought General Motors shares after GM went bankrupt and said its stock was worthless. -- Bloomberg
</TD></TR></TBODY></TABLE>
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>NEWS COMMENTARY
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>From the brink to market darling
Speculators are behind the fivefold rise in AIG's shares in just two months
By DAVID PAULY
<TABLE class=storyLinks border=0 cellSpacing=4 cellPadding=1 width=136 align=right><TBODY><TR class=font10><TD width=20 align=right>
</TD><TD>Email this article</TD></TR><TR class=font10><TD width=20 align=right>
</TD><TD>Print article </TD></TR><TR class=font10><TD width=20 align=right>
</TD><TD>Feedback</TD></TR></TBODY></TABLE>(NEW YORK) THE company that almost shattered the world financial system with its reckless sale of credit default swaps has suddenly become a stock market darling. Go figure.
<TABLE class=picBoxL cellSpacing=2 width=100 align=left><TBODY><TR><TD>
</TD></TR><TR class=caption><TD>Mr Benmosche: Investors liked his talk about paying off the govt and biding his time on selling assets until market prices recover -- <COPYRIGHT>REUTERS </COPYRIGHT></TD></TR></TBODY></TABLE>Shares of American International Group have more than quintupled in the past two months. The stock closed last week at US$50.23, up from US$9.48 on July 9 and up 53 per cent for the week. Can Robert Benmosche, who was named AIG's fifth chief executive in four years on Aug 3, be that good? Hardly. AIG is still the company that failed to make good on swaps that insured investors against defaults on securities tied to sub-prime mortgages and had to be rescued by the US government to the tune of US$182.5 billion.
This is still the outfit whose reputation has also been blackened by an accounting scandal. A company that has to sell chunks of its life and casualty insurance and leasing assets to pay off its government loans - but gets few takers.
And a company that admits its bad name has slowed the sales of its investment products.
Speculators have glommed onto every snippet of good news from AIG. Their enthusiasm pushed the stock higher, forcing short- sellers to buy the stock, helping the rally along.
Those who had sold the shares short, betting on a decline, had to buy the stock to close their positions.
AIG is undoubtedly working in a better environment. Government intervention has saved the banking system along with AIG. The US economy, which fell one per cent in the second quarter, is improving.
The company reported a profit of US$1.82 billion, or US$2.30 a share, for the second quarter, after six quarters of red ink and total losses of more than US$100 billion.
Mr Benmosche, 65, comes to a thankless job with the right resume. He was CEO of MetLife Inc, the largest US life insurer, until 2006 and oversaw its conversion to a stock from a mutual company. AIG is paying him US$7 million a year plus US$3.5 million in long-term incentives. The new CEO has been running AIG - or at least giving interviews on his plans for the insurer - from Croatia, where he's been on vacation.
Investors liked his talk about paying off the government and biding his time on selling assets until market prices recover. So far, AIG has raised only US$9.3 billion from divestitures.
One leg of AIG's stock rally came when Mr Benmosche said he hoped to benefit from the advice of Maurice Greenberg, who ran AIG for 38 years before being ousted in 2005. Letting the fox nudge back into the hen house? In July, Mr Greenberg, without admitting wrongdoing, agreed to pay a US$15 million fine to settle US claims that he had manipulated AIG earnings.
Mr Benmosche, so far, doesn't seem to realise that AIG is really run by the government, which bailed out the company and owns almost 80 per cent stake.
He says the government has done everything wrong at AIG and that he only took the job - after declining it three times - to make a statement about capitalism. He has told AIG employees not to be intimidated by regulators and says he will let the company's new chairman, former American Express Co CEO Harvey Golub, deal with government officials.
While AIG's rally may not make sense, American taxpayers can be happy. Their share of AIG's market value is now about US$5.4 billion. Shares of Fannie Mae and Freddie Mac, also controlled by the US government after the sub-prime debacle, have been rising too. After languishing at less than a buck for months, Freddie Mac closed last week at US$2.40.
AIG may look richer than it really is because of a 1-for-20 reverse split of its shares in June. Without that, the stock would have closed last week at US$2.51.
It's hard to know what motivates people speculating in AIG. Maybe they're the same folks who bought General Motors shares after GM went bankrupt and said its stock was worthless. -- Bloomberg
</TD></TR></TBODY></TABLE>
