After three quarters of staggering housing-related losses, worries are mounting that American International Group's troubles are larger than Wall Street expected. And if that's not bad enough, its misfortunes dragged down the entire insurance sector for the day.
On Monday, Credit Suisse analyst Thomas Gallagher said AIG's credit default swap portfolio "makes it one of the most exposed names to recent credit deterioration." He estimated losses from the insurance company’s financial-products division will reach $6.5 billion during the third quarter, compared with his prior estimate of $2.6 billion.
Shares of American International Group (nyse: AIG - news - people ) sank 5.6%, or $1.11, to $18.76 after tumbling 67.8% since the beginning of the year.
Other insurers followed suit: Hartford Financial Services slipped 2.3%, or $1.38, to $60.04 at the close, while Cigna fell 2.9%, or $1.21, to $41.05. The Travelers Companies lost 1.2%, or 52 cents, to $43.79.
Earlier this month, the world's largest insurer said it had booked $11 billion in investment losses in its second quarter, mostly on mortgage investments gone bad. (See " Three Strikes For AIG.") AIG has lost more than $18 billion over the last three quarters due to investments tied to subprime mortgages.
In May, AIG raised $20.0 billion in capital through the sale of $7.47 billion of common stock, $5.88 billion in equity units and $6.91 billion securities in an effort to strengthen its financial position. The company said it is doing an evaluation of all of its businesses and will report its findings in September.
Gallagher now expects AIG to post a loss of 86 cents a share when it reports third-quarter results in November. The average analyst estimate is for a profit of 75 cents a share.
On Friday, Fitch Ratings warned it could cut ratings on the company's debt due to further losses in its mortgage-based securities. Earlier this month, Standard & Poor's said it would likely cut its ratings if AIG's earnings don't stabilize in the third quarter.
"With at least one major rating agency explicitly saying 'if earnings do not stabilize by the third quarter' another downgrade is likely, the risks of a near-term rating action have clearly risen, in our view," said Gallagher. AIG estimated a one-notch downgrade by both Standard & Poor's and Moody's Investors Service would require it to post up to $13.3 billion in additional collateral. Gallagher expects the company will have to raise another $7.5 billion in equity capital this year.
Gallagher lowered his price target to $22, down from $30, on a heightened risk profile due to uncertainty over the company’s ratings, the amount of capital it may need "and the ultimate cost of a de-risking strategy especially for its credit default swap business."
On Monday, Credit Suisse analyst Thomas Gallagher said AIG's credit default swap portfolio "makes it one of the most exposed names to recent credit deterioration." He estimated losses from the insurance company’s financial-products division will reach $6.5 billion during the third quarter, compared with his prior estimate of $2.6 billion.
Shares of American International Group (nyse: AIG - news - people ) sank 5.6%, or $1.11, to $18.76 after tumbling 67.8% since the beginning of the year.
Other insurers followed suit: Hartford Financial Services slipped 2.3%, or $1.38, to $60.04 at the close, while Cigna fell 2.9%, or $1.21, to $41.05. The Travelers Companies lost 1.2%, or 52 cents, to $43.79.
Earlier this month, the world's largest insurer said it had booked $11 billion in investment losses in its second quarter, mostly on mortgage investments gone bad. (See " Three Strikes For AIG.") AIG has lost more than $18 billion over the last three quarters due to investments tied to subprime mortgages.
In May, AIG raised $20.0 billion in capital through the sale of $7.47 billion of common stock, $5.88 billion in equity units and $6.91 billion securities in an effort to strengthen its financial position. The company said it is doing an evaluation of all of its businesses and will report its findings in September.
Gallagher now expects AIG to post a loss of 86 cents a share when it reports third-quarter results in November. The average analyst estimate is for a profit of 75 cents a share.
On Friday, Fitch Ratings warned it could cut ratings on the company's debt due to further losses in its mortgage-based securities. Earlier this month, Standard & Poor's said it would likely cut its ratings if AIG's earnings don't stabilize in the third quarter.
"With at least one major rating agency explicitly saying 'if earnings do not stabilize by the third quarter' another downgrade is likely, the risks of a near-term rating action have clearly risen, in our view," said Gallagher. AIG estimated a one-notch downgrade by both Standard & Poor's and Moody's Investors Service would require it to post up to $13.3 billion in additional collateral. Gallagher expects the company will have to raise another $7.5 billion in equity capital this year.
Gallagher lowered his price target to $22, down from $30, on a heightened risk profile due to uncertainty over the company’s ratings, the amount of capital it may need "and the ultimate cost of a de-risking strategy especially for its credit default swap business."