Traders are passing around a note out in the last hour by Friedman Billings Ramsey that handicaps how the AIG saga will play out. Here's a summary:
The key takeaway is ONLY A 10 PERCENT CHANCE THAT AIG GOES UNDER. Higher odds are as follows:
20 percent chance: bridge loan from private sources materializes--the Fed is pressuring Goldman Sachsand JP Morgan to structure a $70-$75 billion loan.
If no private equity bridge loan: 20 percent chance that a sov. wealth fund or private equity would offer a high interest rate loan with an option to buy the entire company at a price above the present market value.
If no private equity involvement materializes: a 20 percent chance that the feds make a loan, likely charging a high interest rate, over 12%, and ask for two-to-one collateral.
If no deal from the fed materializes: 20 percent chance AIG will likely be taken over whole by a sovereign wealth fund (Abu Dhabi, Dubai, Saudi Arabia, or Singapore), a foreign insurance company (AXA, Swiss Re, Munich Re, or a domestic player (Berkshire Hathaway or GE). The transaction would be similar to Merrill's takeover by Bank of America.
What about the chances they could sell assets quickly enough to come up with short-term liquidity needs? Only 10 percent.
On a separate note, hope you have noticed the big moves up today in other insurance companies: Aceup 7 percent, Travelers up 9 percent, Chubbup 12 percent. Other insurers will benefit significantly from a serious decrease in competition if AIG fails, FBR notes.
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