AIG (AIG)
By the end of last year, investors were becoming willing to take a chance on AIG once again. The company managed to survive near-destruction in 2008, and after receiving government assistant and taking some drastic action, there were signs that the company was starting to head in the right direction, including a couple of quarters where the company actually reported a profit. But today, as AIG reported the company’s fourth quarter results, investors, executives, and analysts all seemed to have a different response to the news. What did AIG’s results indicate, and why are responses so mixed?
Daily Chart
If you are not able to see the chart, your email client probably does not support javascript. To view it, please click here
Stock Analysis
The easy answer is that this is simply a very complicated situation. After the financial crisis, AIG needed to receive over $180 billion from the government, just to stay alive. AIG now needs to figure out how to repay this massive amount of money, and keep the company functioning at the same time. So looking at the fourth quarter numbers, nothing is quite as straightforward as it seems. First of all, the company posted a loss that was a huge improvement from the year before, dropping from a $61.7 billion loss to an $8.87 billion loss. In context, however, you’re making a comparison with the worst quarterly loss any U.S. corporation has experienced in history; so a significant improvement isn’t quite a surprise. Furthermore, investors aren’t quite thrilled since this loss came after two quarters of profits, and the loss was still significantly larger than analysts had anticipated. The loss worked out to $65.51 per share, while analysts were hoping for a loss of only $3.94 per share. AIG’s stock has fallen significantly over the last few months, from a peak around $50 at the end of the summer to around $25 today.
The question troubling investors now is what is in stock for AIG’s future? AIG had previously put together a plan where it would use cash flows from life-insurance policies in order to repay a portion of its debt to the Federal Reserve Bank of New York. They’ve just announced, however, that they do not think this will be necessary, that they are in a better position and will be able to use other sources of income to repay this debt. CEO Robert Benmosche agreed with the position that things are improving for the company, calling the numbers “a substantial improvement” and saying “we are on our way to regaining our stature” as one of the top companies in its field.
But at the same time as the company is declaring these messages of optimism, there is another side to this issue. In their report, the company also remarked their concern that the company may not be able to survive without additional support from the government. This is not a good sign for a company that still owes taxpayers in the ballpark of $100 billion, and AIG expects only modest growth and recovery over the next two years. Now, the company does have a few big ideas in the works, such as selling its American Life Insurance Co unit to MetLife (MET: Charts, News, Offers) and organizing an IPO for its American International Assurance unit. The company is hoping that these plans and others help to raise some of the funds it needs, but they must remember to keep focus on their standard business procedures as well. Investors are quickly losing faith once again, and will only take so much before they give up for good. Maybe AIG can still survive, but the question is how many of its investors will stick along for the ride?
AIG Commentary:
- Ex-AIG VPs allege gender, age bias at swaps unit – A few former AIG execs are claiming the company has a gender bias against women.
- AIG Underestimated Rage Over Bailout, Ashooh Says – A former AIG employee talks about just how upset the public was (and is) by AIG’s bailout.
- MetLife Seeks Bank Commitments to Buy AIG’s Alico Arm – The deal with MetLife (MET: Charts, News, Offers) continues to move forward, as MetLife tries to obtain funding.
More Stocks in the News:
- Apple’s Jobs says Cash Hoard ‘Will Come in Handy’ – No surprise, Apple (AAPL: Charts, News, Offers) has no desire to pay a cash dividend to shareholders.
- You can learn a lot at lunch with Coke and CCE execs – An interview with Coca-Cola (KO: Charts, News, Offers) execs after the announcement of the takeover of its largest bottler.
- Bayer Forecast Spells ‘Weak’ Margins as Wenning Exits – Bayer reports weaker than expected profit margins, and a weak guidance for the future.
