AIG is having another terrible day. Markets certainly aren’t being patient with the New York based American International Group (AIG). Despite the co.’s announcement of new strategic plans set to be introduced Sept. 25 the insurer’s shares continue to sink aggressively lower. The co’s stock has fallen 25% in less than a week while the cost of insuring against default has risen beyond that of Lehman Brothers (LEH).
According to Phoenix Partners Group, the cost of protecting AIG’s debt with credit-default swaps have exploded. Today it costs $1.2 million, along with $500,000 annually, to protect $10 million in bonds against default, compared with $680,000 on Thursday.
AIG’s meltdown started earlier this year as the firm warned investors about unrealized losses on credit default swaps linked to subprime mortgages. The write-downs on these investments are more than $23 billion, leaving the co. negative by a cumulative $18 billion over the past three quarters.
If the management, notes WSJ, fails to act by not dismantling the firm, which would include selling its 59% stake in Transatlantic Holdings or divesting itself of asset manager AIG Investments AIG Direct, its stock value will further deteriorate as the insurer could face a ratings downgrade on weakness in internal controls. This will force it to post at least $10 billion more collateral with counterparties, prompting a further capital call.
Citigroup lowers their AIG target today to $25.50 from $40 citing marketplace fears over the insurer’s financial condition.
Update: Bloomberg is now reporting AIG may announce a turnaround plan before the previous deadline of Sept. 25. The plan could include selling assets, raising capital and restructuring the company. AIG today closed down 5.41, or 30.83%, to 12.83.