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AIG Latest To Dilute Shareholders


Insurer to raise capital at any cost.


American International Group (AIG) isn't likely to agree the worst of the financial crisis has passed.

The world's largest insurer reported a wider-than-expected loss last week and announced plans to raise almost $12 billion in capital. Just days later, former CEO Hank Greenberg lashed out, claiming the company was in the midst of a "crisis."

According to The Wall Street Journal, Greenberg is questioning management's ability to navigate choppy financial waters. AIG has lost billions, most of which is linked to derivative instruments backed by residential mortgages. Despite the company having issued many of the securities prior to his departure in 2005, Greenberg insists management has since lost its credibility.

The 83-year old Greenberg, who ran AIG for 40 years, claims to not be interested in a formal position with the insurer. Instead, he wants to hold management accountable for its failure to protect the company's value during the crisis.

Management reneging on promises has lately emerged as a poignant theme. Just months ago, AIG's management vowed the company wouldn't need to raise outside capital. $12 billion later, amid what Professor Payne accurately called strong demand, it went to the capital well.

Merrill Lynch (MER) CEO John Thain made a similar claim regarding the need -- or lack thereof -- to raise capital just weeks before he did exactly that. Professor Sedacca and banking expert Minyan Peter point out these deals are getting done on increasingly onerous terms. Management seems content to ignore price and grab cash, brushing aside previous claims to the contrary with a simple, "Market conditions have deteriorated further than we could have reasonably expected." Lehman Brothers (LEH), Citigroup (C) and Morgan Stanley (MS) have all raised capital in recent months.

Many see this as evidence of a market repairing itself, with money moving from strong institutions to weak ones. But if shaky Wall Street firms are just selling themselves to other shaky Wall Street firms, someone will be left holding the proverbial bag when this high-stakes game of hot potato is over.

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No positions in stocks mentioned.

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