The first three days of this week have not been kind to American International Group (AIG +0.44%). As the company continues to manage expectations for a deal gone slightly askew, investors are left wondering if the insurer will be left with more risk on its hands. Plus the entire market is waiting on pins and needles for the Federal Open Markets Committee announcement and subsequent speech from Fed Chairman Ben Bernanke this afternoon. So what is propping up AIG this morning? Just an hour into trading, the company is up 0.93%.
Fed first
With so much riding on the announcement from Bernanke and the FOMC, there are sure to be big swings in the market later today. If the current QE plan stays intact, then there may be a huge sigh of relief from investors who jump further into the market; if there are cuts to the policy, shares will probably fall. For AIG investors, these swings aren't something you have to participate in -- it will happen marketwide, and if you're keeping your eye on the long term, the effects of a cut to the stimulus policy will benefit the market (and AIG) later on.
Dead deal?
AIG has been in the process of selling off non-core businesses and refocusing its efforts on the fundamentals of insurance. As part of the sales, the insurer has been working with a consortium on Chinese financial firms to sell its aircraft leasing operations. The deal, however, has fallen on some tenuous ground, with delays pushing back closing and causing some concerns for investors. Right now, AIG has given the Chinese firms until the end of July to close the deal, but it has expressed an openness to new offers. And should the deal fall through, the world's second largest leasing business will likely go IPO.
As an AIG investor, or someone interested in the company, the current state of the sale should not be causing as much panic as the headlines are suggesting. The original deal was for far less than management had originally wanted to sell the operations for, leaving room for new offers to better the current $4.2 billion price tag. And if there are no new offers and an IPO is the final route, AIG is well qualified to handle that situation and come out on top.
While the company ultimately wants to rid itself of the operations to reduce company debt and refocus on its core businesses, maintaining the leasing segment is not a huge detractor from the AIG recovery story. Management has been cutting costs, reducing debt, expanding, and setting goals for long-term success. All of this leads many to believe that the insurer is well on its way to being the giant it was before the financial crisis. In fact, the reason AIG is up this morning is likely because of a price target upgrade from Deustche Bank -- from $52 to $56, a 24% upside from yesterday's close.
