UPDATE: AIG Subprime Concerns Overdone, Analysts Say 9:48 PM EDT August 1, 2007
By Alistair Barr
SAN FRANCISCO (Dow Jones) -- Concern about American International Group's exposure to subprime mortgages is overdone, analysts said on Wednesday.
AIG (AIG) shares dropped more than 8% in July as investors worried the giant insurer could be hit by losses from declines in the value of subprime mortgages.
Several analysts published research on Wednesday estimating AIG's exposure and two said that if the company did experience losses, it would be manageable.
"Subprime fears (are) unnecessarily weighing on AIG shares," Goldman Sachs analyst Thomas Cholnoky wrote in a note to clients.
"AIG's shares have fallen significantly in past days. Why we don't exactly know, but investors are telling us that it has something to do with the potential for AIG to suffer significant losses from subprime mortgages," Paul Newsome, an analyst at A.G. Edwards, wrote in another note. "Even in a worst-case scenario, we think AIG's subprime mortgage losses would be manageable."
Newsome said AIG could have $35.7 billion of subprime exposure, an estimate he described as conservative. In a worst-case scenario, 10% of that may go bad, leaving the insurer with losses of $3.6 billion, or $2.3 billion after taxes, he explained.
That would be roughly 13.5% of what Newsome expects AIG to generate in operating earnings in 2007.
AIG shares fell during morning trading on Wednesday, but rallied late. The stock closed at $64.57, up 0.6%.
AIG spokesman Chris Winans said on Wednesday that 3.6% of the insurer's total cash invested assets of $814.4 billion is in subprime residential mortgage-backed securities, as of the end of the first quarter. The majority - 86% of those securities are rated AAA and 11% are AA.
Another 0.5% of those assets are in Collateralized Debt Obligations that have a varying degree of exposure to subprime mortgages, he added.
(END) Dow Jones Newswires 08-01-07 2148ET Copyright (c) 2007 Dow Jones & Company, Inc.
I have been away from the AIG board for about a year, and excuse my ignorance but I am still puzzled how old man Greenburg gets to sell shares of AIG from Starr holdings. As I understand the purpose of these shares is an investment vehicle for AIG employees. Why hasn't AIG taken control of the shares and managed same.
Again, excuse my ignorance but I would like to understand this maze. All responsible and informative responses would be appreciated!!
As a PS to my above question: What is Greedburg doing with the funds from the sale of AIG stock held by Starr?
$20 BILLION SEEMS LIKE A LARGE AMOUNT OF MONEY TO ME!!!