AIG Drops on Citigroup Analyst Research Note

Investors in AIG are having a crummy day thanks to a research report released by a Citigroup analyst who claimed that the insurer would need to raise more cash above and beyond the $20.3 billion already collected. The Citigroup analyst predicted that AIG may seek another $5 to $10 billion in order to avoid the indignity (not to mention increased borrowing costs) of being downgraded again by those pesky ratings agencies that are somehow still considered noteworthy, despite their inability to deliver a credit assessment that resides anywhere within the universe of accuracy. Investors are clearly taking this research report to heart. After all, when it comes to massively dilutive capital raising schemes, Citigroup leads the pack with $44.1 billion raised to date. Interestingly, Citigroup rates AIG a "hold." I guess the analyst has attended a few too many internal meetings at Citigroup where he was adequately convinced that raising loads of capital is not terrible news for a stock. I, on the other other hand, am not quite sure why anyone would want to "hold" on to a stock whose CEO seems incapable of understanding the risks of its assets. AIG's CEO Martin Sullivan has repeatedly underestimated the losses the firm would take on its credit default swap portfolio. As I mentioned when AIG initially reported its gargantuan losses, the firm held a credit default swap portfolio on over $500 billion in securities, $60.6 billion of which were on subprime mortgages. Mr. Sullivan as recently as December maintained that any losses on the portfolio were merely "temporary." Temporary losses, however, shouldn't require a $20 billion capital infusion.