Friday, September 12, 2008


Did anyone see the crazy buying on AIG yesterday in the last 5 minutes? The stock traded as low as 13.82, and then in the last 5 minutes it ran from 15.70 to 17.80 closing at 17.55.

Did someone think if they made the chart look good the shorts would lay off the stock?

These are the latest whipping boy's in the short's agenda!

In fact, look at the Heard on the Street column on AIG today:

American International Group needs to act, and fast.

Although the firm said new Chief Executive Robert Willumstad would announce a strategic plan in late September, markets aren't in a mood to wait. With each day, and drop in share price, the insurance titan's options are narrowing.

The stock has fallen 25% in less than a week, and the cost of insuring against default has risen beyond that of Lehman Brothers Holdings. The market's message: Mr. Willumstad needs to dismantle the firm.

If he fails to act, and AIG's stock continues its swoon, AIG could face a ratings downgrade, forcing it to post at least $10 billion more collateral with counterparties. That could prompt a further capital call. By selling units and simplifying the company's structure, Mr. Willumstad may forestall such an outcome. That is akin to selling the family silver, but it beats an estate sale.

AIG's first move should be to sell its 59% stake in reinsurer Transatlantic Holdings, likely netting about $2.5 billion. As much as $3 billion could come from divesting itself of asset manager AIG Investments. AIG Direct, an auto insurer that faces tough competition, should be sold. And AIG might be able to sell parts of its consumer-lending and variable-annuity businesses.

Splitting the company into what amounts to a good bank-bad bank structure is unlikely to fly, especially given the market's harsh reaction to a similar Lehman Brothers plan.

There may be other, more radical options. If a way could be found around legal entanglements, AIG could bring back former chief Hank Greenberg, perhaps as a capital-raising adviser. Or maybe sell AIG's insurance business to Warren Buffett's Berkshire Hathaway. The mere thought of those unpalatable choices should get Mr. Willumstad moving.

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