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AIG (AIG)
AIG Hopes to Stop the Bleeding
AIG has been one of many financials who have announced sell-offs this week in an attempt to boost liquidity, cut losses and improve credit. After three quarterly losses totaling $18.5 billion, AIG's Chief Executive Officer, Robert Willumstad, announced the company may sell its consumer finance and reinsurance units. AIG's stock is down over 70% on the year. Are these sells-offs enough to revive the health of insurance and investment giant? Will Willumstad be able to convince investors that there is an end in sight?
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The first part of September has proved to be rather tumultuous for the already troubled financial sector. Lehman Brothers' (LEH: Charts, News, Offers) stock has sunk to under $5 today, from its 52 week-high of $67. The nation's No. 4 investment bank is planning to sell a majority stake in its asset-management division, including fund manager Neuberger Berman, the bank announced yesterday. Other financial companies are selling units and assets to improve liquidity and credit ratings as well. Merrill Lynch &Co (MER: Charts, News, Offers), the U.S's third-largest securities firm, said it sold $30.6 billion of collateralized debt obligations in July at a fifth of their face value.
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AIG has made no formal announcement of exactly which businesses it might sell but there is great deal of speculation. Businesses that may be sold include American General Finance Corp., the division that makes home and auto loans. AIG's 59% stake in reinsurer Transatlantic Holdings Inc (TRH: Charts, News, Offers) and AIG Investments are also potential candidates. AIG Investments could fetch a price tag of $3 billion or more if it sold for 2.5% of clients' assets under management. AIG's Chief Executive Officer, Robert Willumstad has said he plans to unveil a turnaround strategy on Sept. 25.
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AIG will face many challenges ahead but there is still room for the company to stop the bleeding. It is likely that AIG will find it harder to raise capital now than in May, when it sold $20.3 billion of debt and equity, due to tougher economic conditions. However, the company does have a number of attractive divisions that could yield high price tags. The insurer lost some credibility under the former leadership of Martin Sullivan, who claimed costs tied to the U.S. housing slump were 'manageable' before posting record losses. Investors have lost over $3 billion since its May offering of $6.5 billion in common stock, priced at $38 a share. As of 11:20 am, AIG has fallen to $14.75 a share. AIG operates over 100 countries and has about $1 trillion of assets, including $48.7 billion in hard-to-value holdings.
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