DealZone

AIG says to report ‘earnings’. Really???

American International Group, the once giant insurer which has become best known as a sinkhole for government money, says it will report third-quarter results on Nov. 10.

Most notable was how AIG described what almost certainly was one of the ugliest reporting periods in financial history: “AIG’s earnings release and financial supplement will be available in the investor information section” of its website.

Earnings? According to the Merriam-Webster dictionary the use of the word “earnings” means money was earned during the quarter, or that the company will report there was money left in the coffer after pay outs. That is unlikely, at least based on analysts’ expectations.

Analysts’ on average expect AIG to report a loss of $1.69 a share in the third quarter, according to Reuters Estimates. It will be the insurer’s fourth-consecutive quarterly loss.

Maybe the insurer should have stuck with the word “results.” It would likely be more accurate and sounds better than the other alternative, “loss report.”

AIG: Irony in hindsight

Tyler Cowen from the Marginal Revolution blog has a selection of old AIG commercials. Can you say foreshadowing?

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The greatest risk is not taking one.” YouTube Preview Image

“Debts are easy to fix, but liability is the nightmare.”

FED in Red?

File photograph shows Manchester United’s Rooney and Neville smiling during a photocall in Manchester

Manchester United’s Wayne Rooney and Gary Neville looked perfectly happy sporting AIG as a sponsor earlier this month. Would they be equally pleased with the letters replaced by “FED?”

Vertigo

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.

Who’s next and how?

A worker carries a box out of the U.S. investment bank Lehman Brothers in LondonLehman‘s most valuable assets, primarily Neuberger Berman, are still on the block, but becoming less valuable by the hour with the bank having filed for bankruptcy protection. And with Merrill Lynch now heading for the relative safety of Bank of America‘s $50 billion embrace, it’s time ask “Who is next and how?” Most attention is squarely focused on insurer AIG and investment bank Morgan Stanley.

AIG’s shares lost a third of their value in pre-market Monday action. Warren Buffett would be a natural candidate for AIG assets, given it’s a business he knows (and part of being a successful oracle is knowing your businesses).

On Sunday AIG is reported by the New York Times to have approached the Fed seeking $40 billion in short-term financing. An investor call is expected later today.
The Fed might be more willing to play a role in getting AIG sorted out as well, if it sensed a systemic risk to another strut of the financial markets.