Gediminas Jasionis

American International Group Inc. (NYSE: AIG) still losing ground. Fed is pushed to infuse more money into the failing business

by Gediminas Jasionis March 9, 2009
5aig_logo.jpgAmerican International Group Inc. (NYSE: AIG) may need the fourth capital infusion from the government if the company is to survive. AIG has already requested the money, motivating the company's failure could have significant adverse effects on the market as well as other companies.

The companies reasoning is simple - "Insurance is the oxygen of the free enterprise system. Without the promise of protection against life's adversities, the fundamentals of capitalism are undermined." According to the company's estimates their fall could be also reflected in Europe, causing banks to raise additional capital because of the currently outstanding credit default swaps that would be eliminated thus affecting the banks ratings. AIG's collapse would cripple the money-market funds as the company has $38 billion stake in there. Further the company cautions their fall could have a global impact even affecting the dollar to lose ground, increase Treasury borrowing costs, force competing insurance companies to fall along with the giant. At least so the company states in the appeal for additional funding.

It looks like the situation only has one solution - giving the company more money and forgetting about them till the time comes to give even more. Over the fourth quarter of 2008 the company incurred a loss of $61.7 billion. That was their worst quarter since the beginning of the market crunch.

The U.S. has already infused $150 billion and appointed another $30 billion to be infused last week. The path with no retreat as it would seem as the company might need several additional infusions till their business stabilizes.

The problem is AIG has grown so large and taken significant stakes in so many markets that their collapse could bring hardly predictable results. The company has stated most of its position in the presentation while asking for funding. However their views look more like speculations since the company cannot predict governmental intervention effects on various market segments in case of their liquidation.

aig_chart.png

Even if AIG is left to fall it doesn't necessarily mean the market will collapse right after it. It just means the global market will be shaken to some extent.

As for their stock performance, nothing much has changed since the share price lost ground. It is still plummeting and will continue plummeting until there is news that the company is actually stabilizing its losses.

References:

www.aig.com

AIG's annual report

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