AIG Shares – 3 Pros, 3 Cons

It looked dicey, but American International Group (NYSE:AIG) was able to issue 300 million shares this week.� Of this, about $2.9 billion went to the company and $5.8 million was wired to the Treasury Department.� AIG was a poster child of the 2008 financial crisis, when it had to get a huge federal bailout.

As for its recent stock offering, it priced at $29.� But unfortunately, investors got skittish and the stock price fell to $28.28.� In fact, the shares are off more than 50% this year, and AIG now has a market value of about $50 billion.

So will the stock bottom here?� Or is there still more room on the downside?

Here�s a look at the pros and cons:

Pros

Still a powerhouse. AIG has a massive global platform in the insurance industry, such as with property & casualty (P&C) and life policies.� But there are also valuable businesses in commercial aircraft leasing and residential mortgages.

However, the P&C business is the most extensive.� There are more than 70 million clients across the globe.

Spinoffs. With a set of attractive assets, AIG has an opportunity to cash out of these properties.� Such transactions should help pay down the government debt as well as streamline the operations.

Emerging markets. Before it became vogue, AIG was investing aggressively in these countries.� For example, the company has substantial operations in high-growth areas like China, India, Korea and Russia.

Cons

Reserves. While AIG has made great strides in restructuring, it still has had to deal with boosting reserves.� The company has been hit with higher risks from things like asbestos exposure as well as the disastrous Japanese earthquake and tsunami.

Overhang. Even after the latest public offering, the Treasury still owns a hefty 77% stake in AIG.� Over the next few years, there will be further sales of securities.� The result is likely to be a ceiling on the stock price.

Few growth options. With federal government oversight and the need to improve liquidity, AIG will have much difficulty in making acquisitions.� In other words, finding growth on the top-line will be difficult.

Verdict

AIG has a strong management team, which has incentives to deliver long-term results.� And the company certainly needs this.

But even with a set of strong assets, there are heavy burdens on the company.� Perhaps the biggest is the inevitable issuance of millions of shares to pay off the Treasury.� If anything, AIG will be playing a game of �chicken� with investors to try to unwind the large position.

So, given the serious issues, the cons outweigh the pros on the stock.

Tom Taulli�s latest book is �All About Short Selling� and he has an upcoming book called �All About Commodities.�� You can find him at Twitter account @ttaulli.� He does not own a position in any of the stocks named here.