AIG Slumps as U.S. Takeover Seen Wiping Out Investors' Stakes, Dividends

[Purveyor]

Sept. 17 (Bloomberg) -- American International Group Inc. fell 44 percent on speculation the government's takeover will ultimately wipe out shareholders.

The U.S. plan to save AIG, the nation's largest insurer by assets, may give the government an 80 percent stake in return for an $85 billion loan, and dividends may be halted to common and preferred stockholders. The U.S. reversed its opposition to a loan after private efforts collapsed and the Federal Reserve concluded that ``a disorderly failure of AIG could add to already significant levels of financial market fragility.

The ``punitive'' interest rate on the two-year loan ``makes it extremely clear that this is not a subsidy extended to keep the company afloat but rather a stranglehold that makes AIG unviable while ensuring that its obligations will be met,'' said Marco Annunziata, an analyst at UniCredit SpA, in a note to clients. ``This is to all extents and purposes a controlled bankruptcy.''

AIG unraveled as the worst housing crisis since the Great Depression led to more than $18 billion of losses in the past year. A meltdown could have cost the financial industry $180 billion, according to RBC Capital Markets, because AIG provided insurance on more than $441 billion of fixed-income investments held by the world's biggest institutions, including $57.8 billion in securities tied to subprime mortgages.

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