AIG lunacy

August 27, 2009

American International Group is a $50 stock. Yeah. Sure. But that’s what the market says it is today so it must be.

Shares of AIG are soaring today in part because the insurer’s new CEO Robert  Benmosche tells a Reuters reporter that he doesn’t intend to conduct a firesale of the company’s divisions. He also says he’s been seeking guidance from former AIG CEO Hank Greenberg–the former Wall Street titan who just doesn’t know when to go away.

This is a great scoop for my Reuters colleague Adam Tanner. But come on. In my book, a CEO who jets off for a vacation to the Adriatic coast to a massive villa just days after taking over AIG doesn’t have a lot of credibility. So nice of Benmosche to take time out from his Croatian siesta to field phone calls from a reporter and reportedly wine and dine Greenberg.

At middday the stock was up nearly $11. Nearly 92 million shares have been traded already–more than four times the normal trading volume.

And it’s nearly doubled since AIG conducted a 1 for 20 reverse stock split in July. Shares have risen 71% since Benmosche took over on Aug. 10. Over the past two weeks, it’s been quite common for more than 100 million shares to change hands each day.

But does that “news” coming out of AIG really justify an nearly 30% pop in the stock on higher than normal volume? (There is some speculation of Greenberg putting together a bid to buyout AIG, but it is too ludicrous to repeat.)

What’s going on with AIG is more than just short covering, or mere speculation. It was easier to speculate in AIG when it was down in single digits–not at these levels.

It seems AIG has become a big momentum play for daytraders, hedge funds and of course–high-frequency traders.

To be sure, the surge in AIG shares is great news for the federal government, which effectively owns the insurer that needed a mega emergency bailout last fall. But what’s going on in AIG shares is beyond the pale and really calls for some sort of investigation, in light of the federal government’s big hand in managing the company.

This surge in AIG is making a mockery of the federal government’s intervention in the insurer and makes it appear that Wall Street has learned nothing from last fall’s events.

What a great way to mark the upcoming anniversary of Lehman Brothers’ collapse.


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