AIG in free fall after credit rating downgrades

16 September 2008

The shares of insurer American International Group Inc (AIG) were in free fall, dropping 70 per cent at the open amid intensified fears of bankruptcy.

The shares of AIG, once the world's largest insurance company, dropped 70 per cent to $1.31, one day after a drop of over 60 percent.

AIG's share price has fallen over 94 per cent to less than $23 this month, with the reporting over $13.2 billion in losses in the first six months.

With Lehman Brothers suffering a major decline in value and share price, potential investors started comparing the kinds of securities held by AIG to those held by Lehman. They found that AIG had valued their Alt-A and sub-prime mortgage-backed securities at 1.7 to 2.0 times that of Lehman's, for what Lehman officials called similar securities.

Last weekend, AIG announced it was mulling a sale of its aircraft leasing division, International Lease Finance Corporation, in a bid to raise necessary capital to keep the company afloat.

Media reports indicate that AIG is currently scrambling to come up with around $40 billion in capital to stave off a downgrade to its financial strength ratings, which in turn could cause a greater downturn in AIG's fortunes.