Ironically, it's the struggling proletarians you seem to champion that caused today's mayhem. Britain's version of our struggling middle class resented the competition and uncertainty that accompanies globalization and unrestricted immigration. (Trump, anyone?) There are no longs here that haven't felt the same way. But good investing is about putting emotions aside. It has been a perennial problem for value investors, that undervalued stocks tend to stay that way- whether their fortunes change or not. Take some comfort in knowing Uncle Carl and Cousin John are looking out for our interests. (I'm not so sure about Paulson, but I have a bit more faith in Icahn.) Peter is doing the right things for the long run. The catch, as Keynes once said, is that, in the long run, we're all dead. Oh well.... Hope you can though out this rough patch too.
Yes, I'm getting killed.. I bought a few more warrants today anyway. "in for a penny...."
I do like to see volume explode though. I was beginning to think AIG wouldn't get much more than 30M shares this quarter. We should do double volume for the rest of the month at least- at the best prices of the year. A silver lining??
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i think he is smarter than u think. make things look bad so that he can buy back share at 25 off bv. is reducing tax asset every quarter. using money to steal shares. if u are a long term investor in 2 to 3 years he will look like the second coming. in the meantime i will collect my 2.5% dividend. if im wrong u will hear from carl shortly if not make your own conclusion.
I absolutely feel your pain. But as an investor, all you get to ask are, "Where are we now?" "Where are we headed?" and "Is there a better way to go?" Peter's incompetence turning around P&C is compelling. Either he didn't know what he was doing, or turning that around required more that he could bring. He has managed AIG's finances well though. Peter is NOT responsible for the market's reaction to his performance, only to lead this company in the best way possible. He's been less than perfect in that regard as well. The bad news is that there are no viable alternatives. Even a better choice would throw AIG into further chaos. The good news is that the company is moving forward. Book value is growing faster than earnings. And we have Uncles Carl and John on the board, who are as fed up with the smoke and mirrors BS as we are. I'm not a patient person. But right now AIG is a better value and in a better place than when I bought in. This game has a few more years to play out. Either AIG achieves an acceptable ROE, or it will be sold for parts. I don't want to miss that.
the share holders cant wait forever to get returns on thier investment.
it make no sense that after almost 10 years of recovery the stock price stays the same or even worse
Correct, there is an article on Yahoo that confirms it (if, like me, you're too lazy to go to AIG's IR page). Then you just divide the new strike into $45 and you have the share conversion. Because of that second share conversion adjustment, the warrants are effectively embedding a 6.5% dividend into the formula, which will rise at slightly more than twice the dollar rate as the excess dividend. In my opinion this negates the time amortization loss of the warrants. In other words, the warrants should track the common dollar for dollar or more from here out.
Which inputs is not known ? I assumed dividend to be (32 - 67/4), It gives results pretty close to what you see in the release.
Here is the formula by which strike price and number of shares are adjusted:
The anti-dilution adjustment has two elements. First, the strike price gets reduced. Second, the purchasing power per warrant (i.e. the number of shares that can be purchased with one warrant) increases. Both formulas can be found in the warrants' prospectus.
The formula for the strike price adjustment is as follows:
SR1 = SR0 * (SP0 - C) / SP0 where,
SR1 = the strike price after the record date
SR0 = the strike price before the record date
SP0 = the stock price on the record date
C = the dividend minus $0.675 (hereby referred to as the "excess dividend")
Or, in plain English:
1. Calculate the excess dividend as a percentage of the stock price.
2. Reduce the strike price by that percentage.
Based on that formula, one can make a very interesting observation: the higher AIG's stock price, the less the strike price is reduced.
Thus it seems long-term warrants holders get a slight boost if AIG's stock price lags. But that's not the whole story.
The formula for adjusting the purchasing power of each warrant is shown below:
SH1 = SH0 * SR0 / SR1 where,
SH1 = the shares that can be purchased after the adjustment
SH0 = the shares that can be purchased before the adjustment
In other words, if the strike price goes from $45 to $22.50, then that doubles the purchasing power of each warrant.
Interestingly, this provision means that a higher stock price results in a more favourable adjustment
New exercise price: $44.5826
# of shares purchasable: 1.009
I have not quite been able to calculate how they arrive at these figures. I can get very close, but not exact (I calculate 1.01 sh). If anyone has the exact inputs for the formula that would be interesting to see!
J0n: Have you not added to your wt position in the past 3.5 years? I'm surprised you have not, especially in the last year. I can't resist myself.
Hang in there. My cost basis is under $11 but I've flatlined for 3 & 1/2 years now- certainly nothing to brag about. I expect the warrants to trade like "no big deal" then, a few years out, like a very big deal. That's OK, I can wait. I have a lot of practice feeling poor and stupid.
The AIG IR page for the warrants should show the exact adjustment amounts both for strike and number of shares on the date of record in a few days. The page is a nice quick reference as the formulas are a bit tedious to calculate the adjustments.
I am hopeful that things will pick up soon for the warrants. I'm down quite a bit at the moment on them. AIG buying them back is encouraging on several levels. My thinking is the fewer warrants outstanding, the less prohibitive they are in terms of distributions, spinoffs, etc that the warrants eat into the feasibility of.
AIG trades X dividend today- 32 cents. That means the warrants will be adjusted by 15 cents twice- both as a lower strike price and again as a higher share conversion for slightly more than 15 cents worth. That translated to an effective "dividend" yield of 6.5% on the warrants. And that number will grow disproportionately more than the common from now till 2021.