NEW YORK (Reuters) - Under increasing pressure from shareholders, American International Group could announce details of its turnaround plan much sooner than expected, including possible asset sales and how it will shore up capital, according to a source familiar with developments.
The Wall Street Journal reported late on Friday that AIG could hold an investor call as early as Monday, and business news channel CNBC said the insurer had hired JPMorgan to advise it on raising fresh capital, something it would work on through the week-end.
An AIG spokesman said it could not confirm those details. “There is a lot of rumors and speculation, and we are not going to comment,” said Nicholas Ashooh. The company is due to hold a special investor meeting on September 25.
Those involved with the review are “working around the clock,” the source familiar with developments told Reuters.
A steep drop in American International Group Inc’s shares on Friday has ratcheted up the pressure on CEO Robert Willumstad to publicly come out and reassure investors he has a foolproof plan in hand to turn the insurer around.
AIG’s shares, down as much as 34.5 percent on Friday, making them the leading drag on the Dow, now have a market value less than one-fifth of its $175 billion capitalization a year ago. The shares closed down 31 percent at $12.14 on the New York Stock Exchange.
With a market value of $31 billion on Friday, based on an intraday low of $11.49, it now trails some other insurers, including AXA SA.
The shares slipped further after the closing bell, following a warning from Standard & Poor’s that it may cut AIG’s ratings.
Willumstad, installed as AIG’s chief not three months ago, had called the special meeting to update investors on how he plans to fix the company’s woes, which have begun to erode its world-class franchise.
“(It‘s) very possible that we could hear from AIG in the next couple of days,” said Bill Fitzpatrick, an analyst at Optique Capital Management.
Some other financial services firms in their own straits from the credit crisis, such as Lehman Brothers Holdings Inc, have been forced to move more quickly than planned in disclosing detailed plans to shareholders.
A portfolio of credit default swaps AIG wrote to guarantee securities linked to subprime mortgages has triggered cumulative losses of $18 billion over the past 3 quarters.
Amid those losses, Willumstad has vowed to undertake a grounds-up review that could lead to asset sales, walling off its credit default swaps into a separate entity, and cost-cutting measures, such as job cuts.
An update could not come too soon for investors, who are increasingly nervous that AIG may not be able to extricate itself from thorny mortgage investments, which in turn could trigger credit rating downgrades, and costly collateral increases.
Ratings agency Standard & Poor’s on Friday put AIG’s ratings on negative watch, indicating a downgrade is possible. It cited concerns over the stock’s decline, and an increase in credit spreads, debt and potential access to capital markets becoming constrained.
AIG shares dropped 8 percent to $11.19 in after-market trade.
Earlier on Friday, AIG’s swaps surged to a new record, and began trading on an upfront basis, indicating sellers of protection want to be paid more at the outset of the contract due to higher perceived risk of the firm defaulting on its debt.
Citigroup analyst Joshua Shanker, in a research note, said he was cutting his target price for the stock to $25.50 a share from $40, citing marketplace fears over the insurer’s financial condition.
However, Shanker said there was a key difference between AIG and some other financial institutions beleaguered by the credit crisis.
“The institutions that have failed and/or been rescued have been depositor/lending institutions,” said Shanker. “As an insurance company, AIG’s capital cannot be withdrawn by its clients.”
Additional reporting by Juan Lagorio, Karen Brettell, editing by Gerald E. McCormick, Bernard Orr