Friday, May 09, 2008

AIG Clarity Challenged

American International Group (AIG) released its results and told the world the weak U.S. housing market, the disruption in the credit markets, as well as equity market volatility are responsible for some very bad returns for the investors.

Then read this quote “AIG emphasized that despite the difficult environment and its resulting effect on AIG's overall financial performance for the first quarter, core insurance businesses continue to perform satisfactorily. AIG is confident that, although present economic conditions are difficult, AIG's unmatched competitive advantages, strong brand, and unmatched global franchise position it extremely well for the future.”

AIG basically told the world that it has lots tremendous amounts of hard earned wealth. Commenting on first quarter 2008 results, AIG President and Chief Executive Officer Martin J. Sullivan said, "AIG's results do not reflect the underlying strengths and potential of AIG; rather they reflect the extremely adverse external conditions affecting the spectrum of companies exposed to the U.S. residential housing, credit and capital markets.

In the same press release they informed the world that they plan to raise approximately $12.5 billion in capital to fortify its balance sheet and provide increased financial flexibility. The capital is to be raised through a common stock offering and an equity-linked offering for an aggregate of approximately $7.5 billion. At a later date AIG also expects to issue high equity content fixed income securities.

In a separate press release they announced a 10% dividend increase which gives the impression of financial strength. They can now boast 23 consecutive years of increasing dividends. Strangely enough the dividend is payable in Sep 2008. That’s about five months into the future. Most boards announce dividends by the quarter not almost a half year in advance.

AIG has to go to markets and raise capital. Not really surprising under the circumstances. The problem is when you have cap in hand you need to look and sound good; or so management thinks.