Investors Aim Sights on A.I.G.

The American International Group (A.I.G.) is now under the sights of worried investors as the troubled insurance company reported enormous losses amidst the conflagrating credit crisis.

After Lehman, A.I.G. is next

After the turmoil at Lehman Brothers which is now running out of options, investors are now getting skittish about the impending fate of A.I.G. as it could face billions of dollars in losses for guaranteeing risky monetary instruments used on home loans.  The values of such loans however have plummeted sharply over the past months.

If the worse scenario happens, A.I.G. may need to generate additional capitalization which could be very problematic nowadays as demonstrated by the difficulties experienced by Lehman, Freddie Mac, and Fannie Mae.

Robert B. Willumstad, A.I.G. chief executive officer, said the company will roll out a master recovery plan to bring it on track.  Investors however are getting very impatient.  A similar pronouncement has been made by Lehman Brother’s.  The company however failed to deliver and was forced instead to issue an appeal reassuring investors.  Lehman’s reassurance did not quash investors’ fears.  Friday saw the stocks of A.I.G. falling down by 30.38 percent.

Company Stock Falls

A.I.G. stocks have lost almost a fifth of its value on Tuesday.  This was brought about by developments at Lehman’s as more investors seek other companies on similar fate.  Since Mr. Willumstad succeeded Martin J. Sullivan at the helm of A.I.G, the company’s stock already dropped by almost fifty percent.

On Thursday however, stocks have rallied broadly as investors saw signs of relief from an impending deal for Lehman Brothers and even for Washington Mutual.  Stocks of A.I.G also improved as it gained 5 cents to close at $17.55.

A.I.G. continues to bleed as it reported an enormous $5.3 billion loss for the second quarter.  A.I.G. also suffered a $7.8 billion loss in the previous quarter.  The dilemma of A.I.G. was produced by sophisticated credit default swaps which were sold to investors.

The contracts were supported by mortgage as buyers speculate on its creditworthiness.  When the values of homes dropped, the value of mortgages also declined.  This forced the A.I.G. to downgrade the value of its credit swaps.

Officials Will Not Be Pressured
The A.I.G. chief executive refused to comment on the behavior of its stock last Thursday but an official statement said that the company will not be pressured by market forces to speed up its announced business recovery plan.

The company spokesman said A.I.G. is consolidating its plans for the future as it will try to protect its shareholders.  A ray of hope came in however as A.I.G. won a $115 million lawsuit filed by its shareholders on behalf of the company.  It stands to receive $85 million from insurance payments and another $29.5 million from former officials found guilty of breaching fiduciary duties.