AIG share crash means more pain for top U.S. firms

By Muralikumar Anantharaman

BOSTON (Reuters) - Fidelity Investments' Harry Lange, manager of its one-time star Magellan fund, made what now looks like a poorly timed move in June: he nearly doubled his holdings of insurer American International Group Inc.

Lange, who had seen other financial bets sour, driving the $35.2 billion fund down 17.3 percent since July, may be among several fund managers to suffer from the AIG meltdown.

Though it's unclear where Magellan's holding stood this week when the U.S. government launched an $85 billion bailout of the insurer, Lange in June boosted the fund's AIG holdings to $865.1 million from $475 million in May. By end-July, the holding had been trimmed to around $852 million.

And that was just a piece of the substantial 5.81 percent stake, or 156 million AIG shares, held by Fidelity, the world's biggest mutual fund company, as of end-June, according to Reuters data.

At that time, AllianceBernstein Holding LP held 132 million AIG shares, giving it a 4.91 percent stake.

AIG shares had fallen 95 percent since October, even before the U.S. Federal Reserve late Tuesday provided its $85 billion lifeline in a move to prevent AIG from following Lehman Brothers Holdings Inc into bankruptcy.

The U.S. government will take a 79.9 percent equity interest in AIG, substantially diluting existing shareholders, and will have veto rights over paying dividends to common preferred shareholders.

AIG's woes come hard on the heels of big losses in troubled financial firms such as Lehman, Fannie Mae and Freddie Mac.

AIG shares, which dropped 21 percent in regular Tuesday trading, slumped as much as 48 percent in after-hours dealings. The stock closed Tuesday at $3.75, a far cry from the $70 levels seen a year ago.

Other big institutional holders of AIG as of end-June were Dodge & Cox, with 114 million shares, Capital Research Global Investors, with 90.2 million shares, and Davis Advisors, with 74 million shares, according to Reuters data.

Wellington Management Co owned 32.8 million AIG shares as of end-June and Bill Miller's Legg Mason Capital Management, part of U.S. money manager Legg Mason, owned 29.2 million shares.

Besides Magellan, other prominent funds to own big positions in AIG were Fidelity's Growth & Income Portfolio, the Dodge & Cox Stock Fund and American Funds' Growth Fund of America, according to Reuters data.

Funds and their managers normally decline to comment on their holdings.

(Editing by Ian Geoghegan)