"...Existing stockholders have already seen the value of their stock drop more than 90 percent in the last year. Now they will suffer even more, although they will not be totally wiped out...."
You make the calculation backwards. The value of AIG should be based the collateral that government agrees to accept, and you derive the stock price from teh value of the company, not the other way around.
Damened if the government can give me a loan based on the garbage in my storage room, I will file an IPO tomorrow.
This is not me who's saying. This is written by "a team of writers from NYT."
And I like portfolio saying this and quote, "Think again, the AIG stock is only worth whatever value is left after paying back the new $85 bn in loans with interest at LIBOR+850 (about 10%, which costs $8.5bn per year just for this financing) plus whatever existing liabilities are still outstanding after the new $85bn in proceeds are used to either post collateral or pay off some existing debt.
The US taking 80% of the equity was just to wipe out the common - for no other reason, the gov;t is not even assured of even getting their money back on the loan plus the high interest.
Going forward, whatever value if any might be left will now be spread over 5x the share count (1 / .2) due to the 80% dilution from the penny warrants.
Now ask yourself, how low its going. answer is: penny stock, same as FNM, etc"
The assets of AIG can come back in value when real estate come back...
Cramer tonight said that AIG is a "great company" with "valuable assets" which was hurt by the naked short-selling of hedge funds (and he should know).
He said this recorded before the Fed move, but he implied that the assets & stock price were artificially low and will bounce back with profitability soon...
I totally understand your frustration but what has been done has been done.
Sell at the best price you can find tomorrow because I don't think AIG will do better under fed's constant watch and control. Market won't get better in at least 3 years. We have a long way to go to overcome the current crisis unlike some Wall Street genius hopes.
This is like if you want to go under go under for a 2 year span so as to give the market time to absorb the shock.
> Dilution of what? Last week's share price?
Dilution of today's closing price ($2.60). Look at FRE and FNM price action last Monday, when the govt received 80% stake in them. FRE went from $5.09 to .89. FNM went from $7.10 to .70.