The company’s problems go far beyond the financial products division that sold those now infamous credit default swaps. Cramer found out that an extended recession would force eight of AIG’s subsidiaries to raise $6.8 billion. And that’s on top of the billions and billions in government handouts already received.
AIG’s insurance businesses have grossly underperformed the rest of the sector, as both the funds available for policyholders and asset values are down. The life, health, property and casualty insurance businesses together lost $7.9 billion in capital just in 2008. Investors should keep these points in mind while they’re rationalizing the company’s “mere” $4.4 billion first-quarter loss.
Some people have pointed to AIG’s assets as a sign of strength, saying they could be sold to pay back the government, but Cramer shot down this argument as well. Attempts to unload these assets have been slow moving, and they’re generating barely enough cash to pay the interest on the company’s debts.
To make matters worse, AIG’s businesses are declining in value. So potential buyers are less likely to pay more than book value – what the business would be worth if all of its assets were liquidated – for them. Cramer mentioned that International Lease Finance, the company’s aircraft leasing business, might fetch just $5 billion despite an estimated book value of $7.5 billion last year.
And there are even more problems. Namely, the $17 billion in mortgages that AIG holds. That can’t be good if commercial real estate turns out to be as bad as expected. And the $1.5 trillion of counterparty exposure could blow up in the company’s face as well. Then on Wednesday CEO Ed Liddy told Congress he could not promise that he wouldn’t need more government help, or that taxpayers would get all of their money back. Given this, why would anyone want to buy AIG?
“I cannot think of a single reason to own the stock,” Cramer said, “while there are countless reasons to worry that AIG could get even worse.”
For that reason, AIG is staying in the Sell Block.
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