AIG (AIG) Collapse Would Dwarf Lehman (LEH) Fall
Sep 16th, 2008 | By William Patalon III | Category: Featured, Financial NewsThere is no doubt now that AIG (NYSE:AIG) is in deep trouble.
Its shares shed 50% in the first hour of trading today, adding to the 61% slump on Monday. Stock is now trading at just $2.37. Meanwhile, Standard & Poor’s downgrading of AIG’s credit ratings has complicated the insurer’s efforts to raise fresh capital and avoid a deepening of its liquidity crisis.
William Patalon III says an AIG collapse would have even more serious consequences for the markets and the average American than yesterday’s collapse of Lehman Brothers (NYSE:LEH).
This from Morning Morning:
While Wall Street is still reeling from the collapse of Lehman Brothers an even bigger crisis could be brewing at AIG.
AIG shares have shed more than 75% of their value in the past week. The firm has taken $18.5 billion in losses in the past three quarters and could face as much as $30 billion in write-downs at the current quarter’s close, thanks to derivative contracts backing $57.8 billion in subprime mortgage securities, Bloomberg reported.
Yesterday, AIG’s stock shed $7.38, a 61% decline to close at $4.76. The largest U.S. insurer by assets is now seeking to prop itself up with $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. (NYSE:GS) and JPMorgan Chase & Co. (NYSE:JPM), sources told Bloomberg News late yesterday.
Wall Street’s biggest firms are collaborating in the hope they can avoid a failure at AIG, which sold investors protection on $441 billion of fixed-income assets – $57.8 billion of which were tied to the subprime mortgages that kicked off this crisis, Bloomberg said.
“AIG has intrinsic value and has options as long as it can get over this immediate liquidity hump,” David Havens, a UBS AG (NYSE:UBS) credit analyst told Bloomberg. “It is more important for the government to step in and help AIG than it was with Lehman.”
A member of the blue-chip Dow Jones Industrial Average index since 2004, AIG has a market capitalization of $12.8 billion, even with the recent plunge in its share price.
The diversified insurance-and-asset-management firm is much bigger than Lehman, with $110 billion in annual sales last year and an employee roster of 116,000 people, CNNMoney.com reported. And an AIG failure would impact many more average consumers than the Lehman debacle, as some of AIG’s biggest units include commercial life insurance and retirement planning.
Source: Buyout of Merrill and Bankruptcy of Lehman Heightens Worry of U.S. Credit Crisis Pain Still to Come
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William (Bill) Patalon III is the Managing Editor and Senior Research Analyst for Money Morning, and is also the Managing Editor for The Money Map Report. Patalon's work has appeared in Kiplinger's personal finance magazine, USA Today, and The South China Morning Post, among other publications.
