AIG (AIG) managed to lose 60% of its market value today. At one point the stock was off 70%. A partial rescue came in the form of permission from New York State for the huge insurance company to loan money from its operating units to the parent company. This could provide as much as $20 billion.
That did not seem to be enough, at least not in the eyes of the market.
Getting financing is becoming more and more difficult for AIG. It has been downgraded by several credit ratings agencies. According to Reuters, Fitch Ratings hit the firm with a two-notch downgrade and left the ratings on negative watch.
Because of the concerns that AIG will not have access to capital at reasonable rates if it suffers further downgrades, the Fed has pulled together yet another rescue meeting. Media accounts claim that JP Morgan (JPM) is representing AIG in the discussions and Goldman Sachs (GS) is handling the interests of potential large investors. As was true with Lehman, the government has made it clear that it has no money to put into a transaction.
AIG is trying to raise $70 billion to $80 billion in bridge financing with the promise that the money will be repaid as the company sells its auto insurance, annuity, and aircraft leasing businesses.
According to The Wall Street Journal, "Analysts believe that AIG’s insurance businesses remain healthy. But its losses over the past year have made the major credit-rating agencies skeptical of its ability to raise enough capital to offset the losses."
The terror that any group of lenders faces is that AIG’s current and potential losses due to mortgage and credit derivatives appears to be nearly endless. As the housing market continues to step down, AIG’s leveraged exposure continues to increase.
AIG’s market cap is down to $13 billion. Are AIG’s insurance businesses and aircraft leasing operations worth $100 billion? If they were, it is not likely that the company’s shares would have suffered through a mammoth panic.
Warren Buffett considered a deal to "save" AIG. He passed. So did a lot of other smart money that got a shot at an AIG financing over the weekend.
AIG is now pursuing the greater fools. But, they are running low on capital themselves which leaves AIG at the edge of liquidation.
Douglas A. McIntyre
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