Momentum begets
momentum! The shares of troubled insurer
American International Group (NYSE: AIG) have
gained about a third since Friday's close -- after having
tripled since the end of July! The reason? Edolphus Towns,
the leader of the House Oversight and Government Reform
Committee has rallied behind former CEO Hank Greenberg's
proposal to restructure government loans to AIG. Is that
reason enough?
Murky endgame
While the "crisis endgame" for most of the large
financial institutions that received government support is
now clear (see, for example,
Goldman Sachs (NYSE: GS),
JPMorgan Chase (NYSE: JPM),
Bank of America (NYSE: JPM), or
American Express (NYSE: AXP)), AIG's exit
strategy is quite a bit murkier. In that respect, the insurer
joins the ranks of mortgage giants
Fannie Mae (NYSE: FNM) and Freddie Mac.
Some encouraging signs
Part of incoming CEO Robert Benmosche's turnaround
strategy has been to make peace with Hank Greenberg. That is
a wise decision -- it is better to add Greenberg's clout and
company knowledge to achieve a common goal (Greenberg remains
one of the largest shareholders), rather than working at
cross-purposes. Benmosche is also willing to postpone asset
sales in order to obtain better prices -- another smart move
that has Greenberg's support.
Is it worth an extra 20%?
Does Congressman Towns' support merit a 30%-plus uptick
in market value? Reducing the interest rate on AIG's
government loans and/or extending the maturities
wouldbenefit shareholders, but it's not clear at
this stage that the measures will find widespread
support.
Last week, I explained why AIG is purely a
vehicle for speculationat this time, and the magnitude of
the price move we are witnessing would appear to confirm it.
Nothing wrong with that, but if you choose that route, don't
confuse it with investing -- what Mr. Market gives in outsize
daily gains, it can
take awaywith equal alacrity.
Believe it or not, AIG's insurance activity is a
high-quality business. Morgan Housel has identified
three other high-quality companiesthat are still
cheap.
This article was originally published as
Is AIG Worth a Third More Than on Friday?on
Fool.com
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