A Citigroup analyst says that investors are not looking at the fact that all the money AIG will collect as it effectively liquidates the company will go to the federal government to pay back loans. According to Bloomberg, "Our valuation includes a 70 percent chance that the equity at AIG is zero," said Joshua Shanker, an analyst at Citigroup." Maybe.
AIG will have to raise over $100 billion to cover obligations to the government, so its market cap is only a tiny fraction of that. With any luck, there will be a sliver of value left over for common shareholders. It is a big bet, but one that could pay off. If the equity in the company ends up being worth only $3 billion, investors could almost double their money based on where the stock trades now.
GM has warned people buying its stock that they could be burned if and when the shares go to zero. That has not kept speculators from buying shares in the hope that the company's prospects could improve rapidly once it emerges from Chapter 11. It may be a long shot, but it could pay off like a Las Vegas slot machine.
Douglas A. McIntyre is an editor at 24/7 Wall St.
