It seems that I can’t escape AIG anymore. I asked my kids (who are still at home) today, “Of all the jobs I had, where did I get treated the worst?” The oldest answered “AIG.” He was born shortly after I left AIG in 1992.
I guess I made some of the wounds obvious enough. I don’t believe in “payback,” I believe in “Love your enemies,” and “Be honest.” Thus I find it odd that I am being ever more sought out by reporters on any AIG news.
Granted, I’ve written on underreserving by AIG, the problems they had at their operating insurance subsidiaries during the financial crisis, which got picked up by SIGTARP.
What has prompted recent inquiries, is the sale of stock at $29/share, at only a 1.6% discount to the prior closing price. That price was a hodgepodge between what the market would bear, and what would give the government a “profit.” Bad idea in my opinion; it would have been better to price the deal lower, say $28.50, where the government took a loss, but where the market might have driven the price up. A 1.6% gap is marginal and would invite sellers. $28.50 would be over 3% and would invite buyers.
Now, some sympathy for Bruce Berkowitz — He saw book value decline by almost $1 today, from $47.32 to $46.35. I don’t know if he was buying as the largest private shareholder of AIG, but he was certainly disappointed by the company offering shares. Why offer shares at less than 2/3rds of book?
Easy, because AIG can’t borrow or issue any other security. But that is a signal to what the company is worth. I mean at worst, AIG could have procured a secured loan to provide $3 billion, offering a valuable subsidiary as collateral. They chose to dilute, which tells you what the stock is likely worth.
Also, with such a large fall in price after the offering the next offering should come at a larger discount to the recent market price. Those that were burned in this offering will be less willing to step up and take immediate losses.