September 10, 2008 / 2:27 PM / 10 years ago

UPDATE 1-Citigroup reverses Q3 forecast to loss for AIG

(Adds details, share movement)

Sept 10 (Reuters) - An equity raise could be extremely dilutive for American International Group Inc’s (AIG.N) shareholders, said Citigroup analyst Joshua Shanker, who forecast a third-quarter loss for the world’s biggest insurer.

The company still has significant capital remaining from its capital raise of $20 billion in May, but the third-quarter losses would have the ability to upset the balance, Shanker said.

The report comes a day after AIG’s shares fell sharply as investors worried that it’s large exposure to mortgage markets could trigger the need to raise fresh capital.

The idea of AIG segregating its more problematic assets has been circulated.

On the one hand, if AIG cannot “ring off” these risks, investors may be concerned about capital adequacy, and on the other, segregating assets at this point may be an exercise in “selling near the bottom,” Shanker said.

Shanker, however, believes that AIG has plenty of options before it even considers the impact of a controlling partner.

He now sees a loss of 19 cents for the third quarter compared with his prior view of a profit of 33 cents a share. For 2008, he sees a loss of $1.10, wider than his prior view of a loss of 55 cents a share.

He, however, reiterated his “buy” rating, saying the stock was still trading “meaningfully below intrinsic value.”

Shares of AIG were trading up almost 4 percent at $19.05 Wednesday morning on the New York Stock Exchange. (Reporting by Sweta Singh in Bangalore; Editing by Amitha Rajan)

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