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Trader Talk
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Traders are passing around a note out in the last hour by Friedman Billings Ramsey that handicaps how the AIG [AIG
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]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 Sachs [GS
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]and JP Morgan[JPM
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] 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[BRK
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] or GE[GE
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]). The transaction would be similar to Merrill's takeover by Bank of America[BAC
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].
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: Ace [ACE
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]up 7 percent, Travelers [TRV
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]up 9 percent, Chubb[CB
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] up 12 percent. Other insurers will benefit significantly from a serious decrease in competition if AIG fails, FBR notes.
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New from CNBC.com:
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CNBC's Names in the News:
Goldman Sachs [GS
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JP Morgan [JPM
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Questions? Comments?
POPULAR TRADER TALK POSTS
- Stocks Lurking Near New Highs Again
- Risk Trade Is Back On
- This Week's Biggest Story: The Dollar
- Corporate Issuance Continues at Torrid Pace
- The Bernanke Dollar Bounce & Gross Says Forget About Rate Hike
- Colgate Really Sparkles After Hours
- Light Volume Has Traders Complaining
- Gold Shatters Another Record
- Have Retailers Reached Their Limits?
- The Retail Mind Game
Data is a real-time snapshot *Data is delayed at least 15 minutes