Money & Company

Tracking the market and economic trends
that shape your finances.

« Previous Post | Money & Company Home | Next Post »

AIG hammers the bears again as stock nears $50

August 27, 2009 | 12:45 pm

Wall Street bears have been wrong about a lot of stocks this summer, but they miscalculated on a huge scale with one name in particular: American International Group.

The bailed-out insurer’s shares, which were already up almost 300% from July 9 through Wednesday, have rocketed $11.34, or 30%, to $49.03 today on speculation that former CEO Maurice "Hank" Greenberg may return to play a supporting role in rejuvenating the company.

AIG's new chief executive, Robert Benmosche, told Reuters in an interview that he had turned to Greenberg for help and has been in regular contact with him.

From Reuters:

"The world may choose to vilify him. I think of him as having had some problems, but he can help us with the solutions," said Benmosche in an interview at his villa overlooking the Adriatic [where he is vacationing].

Hankgreenberg "I have enormous respect for him. He has built an incredible business," added Benmosche, who was previously the CEO of MetLife Inc., the largest U.S. life insurer. "I want him to know about the things we are doing; I want to share with him my ideas; I want to get the benefit of his criticisms or his support."

Greenberg, in a separate interview by phone in New York, said he had known Benmosche for many years and held him in high regard.

"He is a very able man, who did a very good job at MetLife. If Bob Benmosche seeks any assistance, whatever he needs me to do, I'll be glad to give him."

After 38 years at AIG's helm, Greenberg was ousted in 2005 amid state and federal probes of the company's accounting.

Last fall, AIG received $180 billion in federal aid and loans to stave off collapse after the explosion of its derivative-securities business. The government now has an 80% stake in the firm.

Market bears on AIG have predicted that shareholders would face a total wipeout by the time the company repays Uncle Sam. But that hasn’t stopped speculators from pouring into the stock -- following a 1-for-20 reverse stock split in July -- on signs that AIG’s finances have stabilized. The company reported a profit for the second quarter, its first since the third quarter of 2007.

What’s more, Benmosche -- who took over as CEO on Aug. 10 -- has encouraged investors, telling Bloomberg News last week that, "At the end of the day, we believe we will be able to pay back the government and we hope we will be able to do something for our shareholders as well."

"Short sellers," traders who borrow and sell stock, betting on falling prices, have targeted AIG, disbelieving the hope story. As of Aug. 14 a total of 24.1 million AIG shares had been sold short, or about 18% of the outstanding stock, according to New York Stock Exchange data.

That could be helping to push up the share price, if the shorts are buying to close out their trades. But that was one theory about the stock’s jump in early August, too. Yet the number of shorted AIG shares fell only modestly in the first two weeks of August, dropping by about 500,000 from 24.6 million on July 31.

One thing’s clear: Day traders have been having a field day with AIG, as shown by trading volume that has exceeded 100 million shares a day in five sessions this month, including today’s.

-- Tom Petruno

Photo: Hank Greenberg. Credit: Gino Domenico / Bloomberg News