Goldman Cautions Investors on AIG's Stock
Goldman Sachs has issued an analyst report warning investors to stay away from American International Group here because of the problems in its financial products unit.
Analyst Thomas V. Cholnoky said investors should stay on the sidelines regarding AIG because of the likelihood that the company would need to raise capital.
"The central tenet of our 'Don't buy AIG' argument is simple: the intricacies of AIG's business are so complex that management may not even know the extent of the company's ultimate exposures, let alone losses. We note that each quarter's disclosures continue to provide incrementally concerning information regarding dangerous exposures," the report said.
Goldman Sachs said it is not attempting to predict how much capital AIG will need to raise. But, it did say the amount will be determined by three factors: the cash losses at AIGFP, the amount of cash it may use for the physical settlements of the collateralized debt obligations within the unit, and the amount it may need to bolster its insurance subsidiaries' balance sheets after AIG's mortgage-backed securities assets fully reflect both the actual losses and the post-downgrade deterioration within regulators' risk-based capital models.
In the end, it added, it will be the ratings agencies that will have the biggest impact on determining how much capital AIG will need to cover its losses. AIG has other issues, Mr. Cholnoky said, including its mortgage insurance line of business. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/