September 16, 2008

vertigo.jpgHow quickly can AIG burn through $20 billion dollars in complex loans? It may not matter much, as the market pummels the once-mighty insurer. With ratings agencies downgrading its debt and the stock cut in half again overnight, the New York State lifeline is likely to be swallowed in the markets tsunami. At less than $5 a share, the stock is worth a fifth of what it was a week ago. Back then it was a $67 billion company. This morning, trading at around $3.80 and falling fast, it will be a company worth a little over $10 billion, so the value of the loan is, well, twice the value of the company. It’s also about four times AIG’s $5.3 billion second-quarter loss, which may help make the the case for a little operational breathing room.

Lehman had to tumble into bankruptcy before any promising buyer interest appeared – if you can call British bank Barclays picking through the debris of an investment bank it opted not to save two days earlier promising. And AIG’s fall is a far bigger shoe to drop than Lehman. “If AIG tanks, that will be the big one. AIG has more to do with the oil price right now than the Saudis do,” said Larry Grace, an energy analyst at Kim Eng Securities in Hong Kong.

What must former CEO and AIG’s largest shareholder Hank Greenberg be thinking? Not only could he personally buy AIG another ten minutes at the roulette table, with his own net worth estimated by Forbes at about $2.8 billion, but he could also have been in possession of a key to salvation, with old relationships in cash-flush China. He apparently offered to help, but was turned away. And besides, he’s kind of tied up with a civil lawsuit brought by NY AG Andrew Cuomo, who has charged him of trying to puff up AIG through transactions that made it look healthier than it was.

Other deals of the day:

* A unit of Russia’s Gazprom and Russian-controlled power firm Centrex plus Italian utility Enia won approval from the European Commission to buy Italian energy supplier Enia Energia.

* IT solutions provider Telvent agreed to buy privately held U.S. firm DTN Holding Company for about $445 million in cash, to reinforce Telvent’s services in the energy, transportation and environment segments and expand into the agriculture segment.

* Merrill Lynch explored selling a minority stake to Goldman Sachs at the weekend before deciding on its $50 billion takeover by Bank of America Corp, the Wall Street Journal said, citing people familiar with the matter.

* Sweden-based medical technology group Getinge has agreed to buy Datascope Corp , a maker of cardiovascular devices, for $865 million in cash.

* Nidec Corp, the world’s largest maker of tiny motors used in hard disk drives, offered to pay up to $283 million to buy Toyo Denki Seizo, aiming to tap overseas demand for motors used in railway cars.

*  Norway’s offshore services group Seadrill said it agreed to sell two rigs to Ship Finance International for $1.7 billion and lease them back, gaining cash for its rig building programme and a new dividend.

2 comments so far | RSS Comments RSS

This is really disheartening to those of us just starting out with families and careers. The news media is focused on the negatives. Is there any hope for those of us not raking in $1M+ annually?

Posted by Sarah | Report as abusive

1 I should expect AIG to be rescued, but not at the benefit of the unfortunate remaining shareholders.

2 To what extent will a resuce trigger defaults elsewhere?

3 Nonetheless, once DOW touches intra day circa 9700 order will be restored.


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