American International Group (AIG) reported a $5.3 billion after-tax loss after gigantic mark-to-market adjustments and big losses on its investment and credit defualt swap portfolio. FBR analyst Bijan Moazami, to use his own words, threw in the towel this morning and downgraded the stock to Market Perform.
Aside from the extraordinary items, Moazami was concerned with a deterioration in AIG’s core business. He estimates that the company lost $8 billion in value in Q2:
Adding insult to injury, many of the core operations such as General Insurance performed poorly, while partnership income fell apart. The confluence of these unfortunate results caused AIG to report a net after-tax loss of $5.3 billion during 2Q08, which does not account for $2.6 billion in after-tax unrealized losses in the investment portfolio. We estimate AIG destroyed around $8 billion of after-tax value during the quarter.
What’s more, the gargantuan loss, as well as the prospect of future losses, AIG’s capital position is again in doubt:
Such losses suggest that despite $20 billion of recently raised fresh capital, AIG’s financial position and the company’s ratings may be questionable. We have long believed, and we continue to believe that AIG’s sum-of-the-parts valuation is worth substantially more than the current stock price suggests. That said, no financial services company, or any company for that matter, can continue to bleed such losses continuously. So far in 2008, the reported losses at AIG, excluding unrealized losses, have amounted to $13.2 billion after-tax.
Finally, Moazami goes on to suggest that AIG has become to large and complex to function effectively as a single unit and recommends a breakup:
At this point, we believe that AIG is too big and too complicated for anyone to fully understand and it should be broken up. We will reassess our views on AIG when a strategic plan is unveiled or when the market environment improves.
Moazami cuts target to $38 from $53.
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