AIG shares are down over 14% in trading today, a massive single day drop for the stock.
But it’s not as frightening as that headline number may suggest.
AIG ended its warrant distribution program yesterday, according to Forbes.
What that means is that, prior to Wednesday, attached to AIG shares was the right to purchase more AIG shares. So if you bought 100 shares of AIG, you got 53 warrants after the close yesterday.
But how do the warrants effect today’s share price? Sort of like a dividend.
From the AIG release (emphasis ours):
American International Group, Inc. (NYSE: AIG) announced today that its Board of Directors has conditionally declared a dividend of approximately 75 million warrants to purchase shares of AIG common stock at $45 per share (the Warrants) to be distributed on January 19, 2011, to AIG’s common shareholders of record as of January 13, 2011.
So, with the dividend disbursed, shares are now down by something around the value of the dividend (warrants).
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