Interesting theory. I'm afraid that's all it is though, because survivability of these already insolvent companies is completely unrelated to their common stock values. What makes one think that AIG is any better off trading @ $50 than it would @ $0.50? Still owned by the government, still billions under water - still bankrupt. The only beneficiary of such manipulation is common shareholder which also happens to be traditionally the least important piece on the board, as far as the Fed is concerned. Besides, the Fed is still not legally obligated to disclose its capital infusions to the taxpayer (which may very well soon change), so how hard would it be donating a few more billion worth to AIG behind closed doors? And AIG already has access to federal credit facilities as needed so raising cash via equity infusions on the open market seems unnecessary at this point. Their debt is still trading at distressed yield levels... if you start seeing these yields fall, then you may have some paradigm shift - nothing else is indicative of anything.
After seeing what the S. Bernstein analyst said, which was actually an old target of $10, he downgraded his rating, which sometimes I know they do to get points toward their II rating. Institutional Investor keeps track of stocks after rating changes and ranks analysts on this. It was looking down like $9 and he gets credit from the previous close. That being said, here's where I disagree: He said the equity might well be worth zero, but stocks in a bankruptcy/re-org normally trade with a value. The debt holders may be converted to equity, or there may be something left over after bondholders are satisfied. $.50 to $1.00 is where these distressed companies often trade. $10 would be $.50 post split. However, the government has emphatically said: AIG will NOT be allowed to fail. I would say that backstop is worth at least $1 or $2 in premium above normal levels in this type of situation. $2 would be $40 (ps). IMHO I think anything below this would be a buy with limited downside. Bounced right off $35 and was closer to $43 after the close tonight. I really think distressed players will pay $1.50 - $2.00 ($35-$40) for this thing all day long. I can't ever imagine it going back to $10 with what we know.
AIG has already failed. It has negative equity, as do FNM and FRE. The government backstopped their contractual obligations, not common share price. NOTHING has been guaranteed with respect to the share price. Read this for more details: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aUOnMs.VHewk
I'm sorry, but I disagree with this article. Government does not own preferred as the author states, they own warrants. There is a difference. The warrants were issued as collateral for an $85bil 24 month loan. If this is not satisfied, then they will convert the warrants and take over the company sacking the board. If the loan is satisfied thru asset sales etc., the warrants are a 'tear-up'. Government is not in the investment business. The author is right on FNM and FRE, he is wrong on AIG.
Here is AIG chart with LOG scale. Since there was a huge fall of price than LOG scale would give better view on perspectives. Do you see what I do? Double bottoms? It seems it will not make triple. This is a technical side of story. I am glad that couple of last posts give serious opinions about fundamentals. We should discuss AIG seriously, and not making jokes. So, please, only swimmers not thinkers.
Ahahaha, why don't you chart Lehman's pps in a similar fashion? Hey, I'll tell you where the bottom is even without one: $0.01. It seems it will not fall under that price.