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AIG Shares Rise After Shakeup at Insurance Giant

Reuters
Monday, 16 Jun 2008 | 10:39 AM ET

American International Group shares rose as Wall Street cheered the resignation of chief executive Martin Sullivan and the subsequent appointment of Robert Willumstad as CEO.

CEO Martin Sullivan stepped down Sunday from his post, as expected, after growing discontent among the board and shareholders with his management of the insurance giant.

Sullivan had come under intense criticism since AIG recently announced billions of dollars in writedowns from losses after Sullivan and the company assured investors the writedowns would be minimal.

The insurer"s stock , a component of the Dow industrials, was up over 1.2%. As of Friday"s closing price of $34.18, the shares had dropped 26% since the end of April and 41% since the end of 2007.

Lehman Bros. Analyst Jay Gelb said the management change "is a step in the right direction to repair AIG"s damaged credibility with investors and the market was braced for this development." However, Gelb said he expects few "quick fixes" for AIG's problems.

He said the biggest questions facing Willumstad are should AIG be broken up, how will investor confidence be restored, will AIG need to raise more capital and will other management changes be needed. Gelb maintained his equal weight rating and $45 stock price target.

Stifel Nicolaus Analyst Michael Paisan said he thinks the change in leadership could have a "positive immediate impact" on the share price, since the way AIG handled the current crisis has been "lackluster and disappointing in many cases."

For the longer term, Paisan thinks Willumstad is one of the few people who he believes has the "experience, resolve and leadership ability to lead AIG and ultimately restore confidence of investors and employees." Paisan retained his hold rating on the stock.

Banc of America Analyst Alain Karaoglan kept his rating at neutral and price target at $48, saying it will take time for the new CEO to understand and untangle AIG, since he is "almost and outsider."

Karaoglan feels there could be uncertainty for investors in the near term, given the potential for additional capital raising and writedowns.

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