AIG Shares Approaching All-Time Low; Analyst Says Firm likely to be Worthless

July 9, 2009 – Investors in ailing insurer American International Group (AIG) have suffered a severe decline in recent days after the insurer completed a 1-for-20 reverse stock split last week and an investment analyst this week opined insurer that used to be the world’s largest soon will be worthless.

An analyst for Citigroup in a note to investors yesterday said there is a 70 percent likelihood AIG eventually will have no intrinsic value and its shares will be completely worthless. The analyst, Joshua Shanker, cited AIG’s potential for further losses due to credit default swaps with European business partners. AIG officials recently indicated the ailing insurance giant remains exposed to credit default swap arrangements on nearly $193 billion in loans issued by European lenders, but the arrangements are scheduled to expire within two years.

Shanker also cited AIG’s fire-sale of lucrative businesses at below-market values as the insurer is forced to liquidate assets during a bad global economy in order to repay its debt to U.S. taxpayers. Former AIG chief executive Maurice “Hank” Greenberg has made similar assertions, saying the company should not be forced to unload valuable assets in a buyers’ market – all but assuring the company will not recover and preventing shareholders from recouping losses inflicted during the past year.

Since its reverse stock split on July 1, AIG’s stock has declined from a closing equivalent price of $23.20 on June 30 and closed at $9.48 cents at the end of trading today -- a value equal to about 48 cents before the reverse stock split. The stock hit an all-time low 33 cents in early March before the reverse stock split and could drop even lower as investors continue to shed shares that cost only about $1 in recent weeks. Many industry analysts suggest AIG shares could drop much lower after the reverse stock split last week boosted the per-share price twentyfold.

Formerly the world’s largest insurance company, AIG became the world’s most indebted insurer after federal officials in September agreed to extend the company an $85 billion loan in exchange for an 80 percent share of company stocks. Federal officials said allowing AIG to go bankrupt would have a devastating impact on U.S. and international financial markets and later revised lending terms with a lower interest rate and longer repayment period.

Under the December revision, the Federal Reserve provided AIG $60 billion in loans and the U.S. Treasury another $40 billion so company officials could buy up preferred stock. Federal officials also approved $53 billion to purchase the company’s risky mortgage-backed assets and other debt contracts. The latest bailout adjustment boosts its total value to nearly $183 billion.

AIG is attempting to sell off its overseas life insurance units and other subsidiaries to repay up to $60 billion in loans this year. Company officials intend to focus future business on property and casualty insurance markets and maintain a minority financial interest in some profitable overseas ventures.

AIG has raised more than $2 billion through the sale of several subsidiary units, including commercial insurer Hartford Steam Boiler for about $742 million and joint Brazilian venture for about $820 million. AIG in January agreed to sell the insurer’s Philippines-based retail bank and auto-lending subsidiary to the East West Banking Corporation for $48.5 million.

Industry analysts say the insurer could raise up to $50 billion through the sales of AIG’s U.S.-based and overseas life insurance units and retirement savings units.