No Respite For AIG

May 20, 2008

The largest insurance company in the world, American International Group, is still in trouble. Today, it gave its investors the sad news that the mortgage assets market is still in a bad state; recovery seems to be slow in coming.

The declining prices of mortgage assets as a result of the U.S. subprime lending crisis has been responsible for two of the most dismal quarters in the history of the American International Group. During the last quarter of 2007, AIG lost $5.3, a record amount. Then, during the first quarter of 2008, AIG beat that unfortunate record, with a staggering loss of  $7.8 billion.

Earlier today at the New York Stock Exchange, AIG’s shares declined by over 8%. The worth of a share of AIG today was a mere $40.57. Over the course of 2008, AIG’s stock has declined by approximately 44%. This rate of decline is alarming even in light of the tough times that all of Wall Street is currently undergoing: the S&P insurance index has listed the average rate of decline for insurance companies over the course of the past year to be only about 25%.

The Chief Executive of AIG, Martin Sullivan, told investors that the company’s mounting credit problems have resulted in AIG’s credit rating going down, to the point where two ratings firms have downgraded the company. These setbacks, said Sullivan, will raise the cost of maintaining many of the operations AIG is involved in, such as its aircraft leasing unit.

Tom Cholnoky, a Wall Street observer and an analyst with Goldman Sachs, predicts of AIG that “the market is not going to look favorably on this quarter’s results.” Sullivan, observers predict, will have to try to stop the losses and increase the company’s capital. Additionally, he will have to work to rebuild the faith of AIG shareholders after the setbacks they’ve witnessed over the last year.

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