Bloomberg News

AIG Share Gains May Be Limited by Risk, Goldman Sachs Says

June 08, 2011

(Updates share decline in fourth paragraph.)

June 8 (Bloomberg) -- American International Group Inc.’s prospects for boosting its share price may be limited by pressure on investments and concerns about the sufficiency of insurance reserves, Goldman Sachs Group Inc. said.

“The stock could be range-bound as risks offset opportunities in the near term,” Goldman Sachs’s Michael Nannizzi said today in a note to clients. He initiated coverage on the bailed-out insurer with a “neutral” rating.

AIG Chief Executive Officer Robert Benmosche has been seeking higher-yielding investments as low interest rates limit returns on fixed-income holdings. He named Peter Hancock to head the property-casualty business in March after the division said the month before that it would take a charge of about $4 billion because reserves were insufficient.

AIG fell 10 cents to $27.32 at 4 p.m. in New York Stock Exchange composite trading. The insurer has plunged 43 percent this year, the second-biggest drop in the Standard & Poor’s 500 Index. Nannizzi said the price may climb to $31 in 12 months.

The possibility that AIG will again have to increase reserves is among the risks facing the company, the analyst said. Low interest rates and “credit-market volatility” may also pressure the stock, he wrote.

The U.S. Treasury Department has a majority stake in the New York-based insurer, an “overhang” that may reduce the stock’s value by 15 percent, he said. The Treasury, led by Secretary Timothy F. Geithner, cut its stake last month to 77 percent by selling 200 million shares for $29 each.

One analyst tracked by Bloomberg has a “buy” rating on AIG, Paul Newsome at Sandler O’Neill & Partners LP. Three have a “hold” rating and two advise selling the company’s shares.

--With assistance from Andrew Frye in New York. Editors: Dan Kraut, Steve Dickson

To contact the reporter on this story: Noah Buhayar in New York at Nbuhayar@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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