AIG to Raise $20 billion
AIG announced that they are planning on raising $20 billion in capital by offering new public shares and selling a variety of new securities. This announcement comes on the heels of the company’s monstrous $8 billion quarterly loss in the most-recent quarter. The move will help AIG sure up its balance sheet and help maintain its rating with credit rating agencies.
The announced sum is about $8 billion more than the previously announced capital-raising plan outlined after the company suffered more than $9 billion in mortgage-related losses.
From Market Watch:
Raising more capital than planned may be a positive sign because it shows that investors are keen to put new money into AIG. However, it could also be read more negatively — suggesting AIG needs to prepare for more losses ahead.
The insurer may also be responding to demands by lead ratings agencies. AIG’s results have become much more volatile in recent quarters as the credit crunch knocked the value of derivatives contracts held by its AIG Financial Products unit. Ratings agencies often require insurers to hold more capital to support businesses that produce more volatile results.
If I was a shareholder I’d be a bit freaked out. First, I’d wonder what I’m doing with a position in AIG, then I’d wonder how diluted the stock was becoming, then I’d wonder about what losses are around the corner that would push management to raise an additional $8 billion above their previously-announced plan.