AIG’s Massive Short Squeeze

Being short a specific stock or bond position and seeing it get squeezed is a very unpleasant experience. To that point, those traders or investors who are short AIG (NYSE:AIG) are experiencing real pain over the last handful of trading sessions. AIG’s stock has tripled over the course of the last month and closed today just above $48/share. What is going on?

1. Be mindful that AIG had a 1:20 reverse stock split on June 30th, so today’s close equates to a $2.40 close split-adjusted. The stock is still down 90% over the last 12 months.

2. AIG, as with many risk based companies, has benefited from an overall improved tone to the market and perceived improved economy. That said, AIG remains an entity filled with enormous risks and exposures.

3. The biggest development with AIG is a reengagement with former AIG head, Hank Greenberg. Why is this so important? Two reasons:

  • Greenberg can help new AIG CEO Robert Benmosche on a number of fronts, both externally and internally. Greenberg may be of questionable character, but he knows how to work books and businesses.
  • Outside of Uncle Sam (who owns 80% of AIG), Greenberg controls a substantial amount of AIG’s stock. Don’t think for a second that Greenberg would not be very happy to help orchestrate a good old-fashioned short squeeze. How so? Do not lend the stock to those traders and investors who are short. Buy more stock into the strength.

While some Wall Street analysts may believe they can fully understand and appreciate the complexity of the insurance behemoth known as AIG, the fact is this remains a highly speculative trading vehicle more than a fundamentally sound investment. Trade it accordingly.

Those with knowledge and insights into AIG and its trading patterns, please comment.

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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