Credit Suisse sees higher chance of AIG bankruptcy

September 16, 2008 by · Leave a Comment
Filed under: Industry News 

This looks to be the next shoe to drop in the market.   AIG being the largest insurer in the US could spell major trouble for counter-parties of their debt.  Estimates have placed a $400 billion dollar loss if AIG fails.  New York’s Patterson stated that AIG has not tapped their $20 billion fund to give them extra liquidity.  I have read speculations that AIG has 24-48 hours to figure out a deal or they will go under and leave much uncertainty in the markets.  To be continued…

Release:

American International Group Inc faces heightened probability of a potential bankruptcy filing by the holding company, a Credit Suisse analyst said Tuesday, a day after the insurer’s credit ratings were cut, jeopardizing efforts to raise cash necessary for its survival.

Shares of AIG, once the world’s largest insurer by market value, fell as much as 74 percent to $1.25 in early trade on Tuesday, as investors fretted over the company’s ability to secure desperately needed capital.

“While there is a chance the company can work its way through its liquidity problems if it can secure substantial bridge financing, we think this will be challenging to execute it in the current onerous credit environment,” analyst Thomas Gallagher wrote in a note to clients.

The analyst estimated that negative marks at the AIG Financial Products (AIGFP) division, which manages AIG’s credit default swaps portfolio, would require another $5 billion to $10 billion of collateral postings this quarter, pushing the total to $20 billion to $25 billion.

“Ironically, the weakening of its credit spreads and ratings could make it easier for AIGFP to attempt to commute its credit default swaps on collateralized debt obligations, but the large number of contracts and counterparties would likely make this a cumbersome and lengthy process,” Gallagher added.

He cut his price target on the stock to $3 from $6 and maintained his “neutral” rating.

AIG, thrown a $20 billion lifeline by the state of New York, came under renewed pressure on Tuesday as ratings agencies downgraded the insurer’s debt and the financial sector meltdown spread.

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