Sept 17 (Reuters) - American International Group (AIG.N) may post mark-to-market losses of $20 billion for the current quarter and eliminate dividend as high debt load significantly cuts into its return on equity, a Citigroup analyst said.
The company has become increasingly levered to debt and this mark-to-market losses should be meaningful for the quarter, analyst Joshua Shanker wrote in a note to clients.
Citigroup also lowered its price target on AIG stock to $4.50 from $14.00.
“At rates that might be considered onerous, we expect that AIG will aim to repay its loan with sales of businesses,” Shanker said.
The analyst said he does not expect rating agencies to upgrade the company in its current condition.
However, UBS sees a possibility that financial strength ratings at core insurance subsidiaries could be restored with capital infusion, which in turn could help reduce the reputational/credibility damage.
Wachovia said the U.S. government’s 79.9 percent equity interest in the insurer could restrict common and preferred dividend payments and AIG will remain a going concern. On Tuesday, the U.S. government agreed to rescue the insurer with an emergency $85 billion loan from the New York Federal Reserve in efforts to prevent a bankruptcy that would have thrown world financial markets into even deeper turmoil.
Shares of AIG were down 45 percent at $2.07 in late morning trade on the New York Stock Exchange. (Reporting by Sweta Singh in Bangalore; Editing by Gopakumar Warrier)