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AIG shares tumble 15%
Shares fall after Bernstein Research says AIG's loss reserve is $11 billion short and cuts the insurance giant's price target by 40%.
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See all CNNMoney.com RSS FEEDS (close) By Hibah Yousuf, CNNMoney.com staff reporter
November 30, 2009: 6:37 PM ET
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NEW YORK (CNNMoney.com) -- Shares of AIG plunged nearly 15% Monday after an analyst hacked the insurance giant' price target 40% in a research note on worries about the company's loss reserves.
AIG (AIG, Fortune 500)'s stock fell 14.71% to $28.40, after trading at session low of $28.04. The shares finished down almost 50% off their 52 week-high of $55.90.
In a research note, Bernstein Research analyst Todd Bault told investors he cut AIG's price target to $12 from $20 and said the insurer's "loss reserves are significantly deficient again, much sooner than we would have forecast two years ago."
Bault projected that AIG's loss reserves are short $11 billion, with $10 billion concentrated in "long-tailed" casualty lines: $1.8 billion in workers compensation, $5.6 billion in general liability and $2.6 billion in professional liability.
The $11 billion deficiency equates to about $10 per share and was a "big surprise" to Bault, who said the implications are "significant."
"AIG shareholders and the Federal government face considerably more uncertainty than they may have anticipated: recall that AIG's insurance units were not generally considered to be part of its problem. In fact, early in AIG's downfall, borrowing surplus from AIG's insurance units was considered a possibility for saving the holding company," the Bernstein Research note said.
After having received $82 billion in taxpayer-funded bailout funds, the insurance company is now essentially owned by the government.
Note: Those holding AVF and AFF need to consider the implications of these new reports as the essential long-term funding for the dividends/interest was to come from the "core" business itself which now appears shakey....also they have the "right" to suspend quarterly payments for 10 years and who knows if that might happen in the fallout. Apparently the secure AIG property and casualty groups are running sub-par now and some have predicted a flight of customers from AIG insurance deals.
Nice profits have been made on both AVF and AFF over the past
12 months with dividend payments and speaking for myself I don't like the looks of where this could be headed in terms of any meaningful stability or assurances from AIG corporate.
Good luck to All.
