September 5, 2008 / 2:56 PM / 11 years ago

UPDATE 1-RESEARCH ALERT-Morgan Stanley downgrades AIG

(Changes source; adds details, share movement)

Sept 5 (Reuters) - Morgan Stanley downgraded American International Group Inc (AIG.N) to “equal-weight” from “overweight,” citing escalating liquidity concerns for the world’s largest insurer.

“We believe a sizable capital raise is likely, probably in the range of $10 billion to 15 billion, the majority of which is likely to be common equity,” analyst Nigel Dally said in a note to clients. He cut his price target on the stock to $25.

The uncertainty being driven by AIG’s financial products group and investment portfolio exposures leads us to believe that its debt ratings are highly vulnerable, Dally said.

The analyst also said refinancing $39.95 billion of debt and interest due within the next 12 months could hurt pretax earnings by $1.0 billion annually.

He expects $2 billion to $4 billion in deferred acquisition costs and goodwill charges by year-end, which, given the current share count, would hit book value by roughly $1.00 per share.

AIG shares were trading up 27 cents at $21.49 Friday morning on the New York Stock Exchange. They had fallen 4 percent to $20.29 earlier in the session. (Reporting by Adveith Nair in Bangalore; Editing by Amitha Rajan)

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