Stock Investment Blog|Journal of Stock Investments|Portfolio

Custom Search

NEW YORK (Dow Jones)–The $20 billion in capital raised by American International
Group Inc. (AIG) may not be enough for both itself and its troubled subsidiaries,
an analyst told clients Wednesday.

Citigroup analyst Joshua Shanker said the giant insurance holding company may
have to funnel the capital it’s already raised into its AIG Financial Products
Corp. subsidiary, the unit that has racked up heavy losses in the value of
insurance written on complicated debt securities.

If that’s the case, rating agencies may push AIG itself to raise even more
capital to replace what it gives to its subsidiaries, Shanker said.

AIG Spokesman Chris Winans declined to comment on Shanker’s report, but said AIG
has no current plans to raise more equity capital.

AIG’s shares traded down 2.6% at $35.65 after the market opened.

AIG said May 22 that it had raised $20 billion in fresh capital, more than the
$12.5 billion the company said it would raise following the release of its
first-quarter results earlier this month, when it reported a loss of nearly $8
billion.

“We didn’t raise the capital because we needed it,” Winans said. “The demand in
the market was so strong, we took the opportunity to create the extra cushion.

Because AIG’s total shareholder’s equity has declined by $24.4 billion, or 23%,
since the end of the third quarter, Shanker said the $20 billion equity raise
only seemed to replaced the capital lost so far.

“Despite AIG’s statements to the contrary, we do not believe the company is or
was in an excess capital position,” he said.

Shanker estimated that AIG’s Financial Products subsidiary, which took a $9.1
billion pre-tax charge during the first quarter tied to unrealized losses on
credit default swaps, is significantly undercapitalized at under $2 billion in
capital and leveraged at nearly three times the level of its peers while insuring
risker forms of debt.

Shanker believes that the credit rating agencies, under fire themselves for by
those who say they rated risky debt too highly, will take a stricter view of
credit guarantors like AIG. They may push AIG to shift more capital to shore up
Financial Products’ balance sheet, and then have to replace it with another
capital raise.

No comments yet.

Comments RSS TrackBack Identifier URI

You must be logged in to post a comment.