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Credit Suisse Lowers the Boom on AIG

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But stockholders may soon be feeling even more pain.

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American International Group (AIG) has seen better days. This past Friday, Fitch Ratings said it "may cut its ratings [on the firm]... citing uncertainty over the outcome of AIG's review of its businesses" - and its CEO is expected to announce plans in late September to make the company more competitive by divesting it of some of its parts.

And on Monday, Tom Gallagher, an analyst with Credit Suisse (CS), "lowered his third-quarter earnings estimate to a loss of $0.86 per share from a profit of $0.13 per share." He also reportedly lopped his price target from $30 to $22.

Why? Because of the higher perceived risk associated with ratings uncertainty.

Unsurprisingly, the stock got slammed on the news, closing down more than 5%. This indicates that Gallagher may not be alone; other analysts may soon follow, and the stock could take further hits.

I'm also a bit put off by how much Gallagher lowered his number. More specifically, he went from a 13-cent gain to a loss of $0.86. That isn't negligible - and I think it shows just how difficult the numbers are to predict. By extension, it also tells me I want to see a couple of quarters of results before I even think about bottom-fishing the shares.

And what do you think tax-loss selling will be like? With the stock currently more than 70% off its 52-week high -- and with all this bad news -- my hunch is that the shares could end up getting pummeled even more.

Finally, I'm concerned that the stock could be extremely volatile until AIG's CEO announces the much-awaited plans to reconfigure the company.

The flip side: AIG remains a big, well-respected name. As a result, I think there's a chance that the stock could, at some point, be a good value.

Stay tuned.

AIG closed at $18.78, down $1.09 or 5.49%.


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No positions in stocks mentioned.

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