Goldman Sounds Alarm on AIG

Go read this very good (and disconcerting) post on AIG by Sam Jones at FT Alphaville (hat tip reader Richard). Key sentence:

Goldman won’t say it, but we will. AIG is going the way of the monolines… but on a much larger scale.

Boldface his.

Note that the Bloomberg story on the same Goldman research report is comparatively anodyne.

The problem of management not really knowing balance sheet exposures is actually widespread and long-standing, as Michael Lewis has argued (and reader Danny has provided further supporting evidence).

I know of one bank that recently provided a large loan to AIG and said it went over the financials in detail and was “completely comfortable” with the credit (and this is after the insurer’s not-pretty second quarter earnings release). It is remotely possible that AIG has some undervalued assets somewhere. If so, they had better start realizing value on them, or at least talking them up, pronto.

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9 comments

  1. S

    it is even more pathetic that the SEC puts out a statement that it is now contemplating new short rules by end of month. When do people simply pull there money out? The smart folk already have.

  2. tyaresun

    Does’nt AIG own PIMCO? What will happen to PIMCO if AIG goes the monoline way?

    Was PIMCO force fed AIG alphabet soup?

  3. Anonymous

    This will impact Buffett and his Level 3 derivatives which he has kept below the surface for decades! Warren was implicated with AIG several years ago and Spitzer was pushing for collusion … just saying.

  4. Sivaram Velauthapillai

    Anyone that insures RMBS, CDOs, CDO-squareds, HELOCs, or CES are going to start looking like the monolines. But it’s ridiculous to compare AIG to the monolines. AIG is a diversified insurer with something like half to a third of revenue in life insurance (someone correct me if I’m wrong.) AIG is nothing like the monolines.

    Threat for AIG equityholders is not one of insolvency like the monolines; rather, it’s the threat of continuous dilution (a la Citigroup)…

  5. Anonymous

    AIG is no BRK and extrapolating AIG’s unfortunate situation to BRK is just silly. AIG’s problems will only enable BRK to gain market share or increase margins — probably both.
    — Jack Staub

  6. synchro

    Sivaram, for being such an expert investor in monolines (especially Ambac) and master of their nuanced modes of survival, you seem to have forgotten that the holding company can go insolvent while its various subsidiaries can be at the same time well capitalized.

    I would say that at some point the break-up value of AIG’s various parts is probably worth more than where it is trading now.

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