Investors Love AIG, But Does It Love Them Back?
Right now incoming American International Group CEO Robert Benmosche could probably hold a town hall meeting and get a better reception than President Obama.
On August 3, as the curtain rose on the Benmosche show, the stock also rose and it gained steadily on heavy volume for more than a week. Sure there are other factors: short-covering, new chairman Harvey Golub with the credentials to impress Congress, and of course, second quarter so-called "profits," which remain in quotes because no one can explain what it means, even the accountants who accounted for it.
AIG's shares have fallen below $24 this morning, but still remain well above July levels.
Far be it for anyone to rain on this tickertape parade. Anyone, that is, except Moody's, one of the two largest rating agencies.
Moody's Investors Service said today that despite AIG's recent quarter, its outlook remains "negative" and it has doubts about AIG's ability to fully repay the government. Only partial payment "is a real possibility," says Moody's analyst Bruce Ballentine. And that doesn't bode well for the shareholders, including the U.S. government, which owns 80 percent.
Ballentine correctly notes what BNET Finance has already pointed out: AIG's property-casualty and life insurance units experienced significant declines in business volume and operating income over the last year. AIG's so-called "profit" was largely due to accounting for derivatives, which might actually mean that its investments went down rather than up.
Ballentine acknowledged that Financial Services and Asset Management, two of AIG's other divisions, showed "a clear improvement" by reporting only moderate operating losses.
But yesterday another bolt of lightning struck AIG investors - if they had been paying attention. AIG cut 900 jobs and closed 145 branches at its money-losing consumer finance unit and said it may make further cutbacks as it prepares to sell the division.
All this news shouldn't encourage investors to be overjoyed or overbought. The once trillion-dollar mega-insurer is still dwindling.