AIG Writedown Talk Is Untrue, Faber Says
Rumors that American International Groupwill take a large writedown were disputed in a report from CNBC's David Faber.
"What I'm hearing from people in a position to know is that these rumors are simply not true," Faber said. "In fact, there is likely to be no writeoff whatsoever at AIG."
Faber added, "Of course, we'll continue to hear rumors, and some of them will end up being true, of potential writeoffs at various financial institutions, given the continuing decline and deterioration in subprime -- and its effects on CDOs (collateralized debt obligations) and structured products, based on that credit risk."
American International Group shares fell 6 percent Thursday, becoming the biggest percentage decliner among the components of the Dow Jones Industrial Average, on speculation that the large insurer may make a significant writedown in the value of debt securities.
Shares of AIG hit a 52-week low of $59.06 at one point, before recovering some of its lost ground.
According to traders, there was speculation that AIG could post a charge of as much as $10 billion from its structured products guarantee group.
Traders said the AIG rumor may stem from comments made by Citigroup analyst Joshua Shanker ahead of the opening bell that he expected the insurer to have a mark-to-market loss of $1.6 billion. Such a charge would have no impact on operating income.
In the wake of Merrill Lynch's $7.9 billion writedown on Wednesday, investors are looking to see whether other companies are at risk for posting similiar charges. Merrill took its hit as a result of making bad investments on risky subprime mortgages.
The Merrill news, combined with a loss from bond insurer MBIA, has heightened sensitivity to the issue. MBIA said its third-quarter loss was the result of the declining value of credit derivatives.
AIG spokesman Chris Winans declined to comment on the rumors and the company's share activity.
Earlier Thursday, AIG issued a press release announcing its third-quarter earnings were scheduled for release after the close of the market on Nov. 7.
According to Street Account, a Lehman analyst said the weakness in AIG stock is overdone because the suspected writedown is unlikely. The Lehman analyst declined to comment.
However, other analysts say a writedown is possible.
According to Reuters, analysts at the Royal Bank of Scotland expect AIG to "take a pasting."
The RBS report said that the bulk of Merrill's write-down, some $5.8 billion, came from the highest-rated senior pieces of Merrill's CDOs.
RBS said AIG has acknowledged a senior portfolio of $465 billion, $64 billion of which is backed by subprime.
However, AIG has said that underlying tranches of CDOs would have to default before it faced losses and has also said that AIG does not mark its portfolio to market, Reuters said, citing the RBS report.