Bloomberg News

AIG Is a ‘Classic Value Idea’ That May Gain 32%, BofA Says

June 10, 2011

(Updates to show share gain in sixth paragraph.)

June 10 (Bloomberg) -- American International Group Inc., the insurer majority owned by the U.S., may advance more than 30 percent in the next year in New York trading as results stabilize, Bank of America Corp. said.

AIG trades at about 60 percent of book value, a measure of assets minus liabilities, after charges tied to its government rescue and reserve shortfalls drained earnings. Rivals including Travelers Cos. and Prudential Financial Inc. trade close to full book value, according to Bank of America analysts led by Jay Cohen, who initiated coverage with a “buy” rating.

“We see AIG as a classic value idea, given a sizeable discounted valuation, relative to peers,” the analysts said in a note dated yesterday. “A lack of any material bad news may be enough to allow for healthy stock appreciation.”

AIG may climb to $37 in 12 months, a 32 percent gain from yesterday’s close of $28.10 on the New York Stock Exchange. Cohen said. Bruce Berkowitz, who has has been building a stake in AIG through his Fairholme Capital Management LLC, said yesterday that investors will look more favorably at the insurer as the government reduces its holdings.

“People want to stay away until the United States Treasury is out,” Berkowitz said in an interview with Bloomberg Television’s Erik Schatzker. “If I had enough cash, it wouldn’t take long at all” for Treasury to cut its stake below 50 percent, he said.

AIG jumped 86 cents, or 3.1 percent, to $28.96 at 4 p.m. in composite trading. The company plunged 40 percent since Dec. 31.

Client Confidence

The Treasury Department, led by Timothy F. Geithner, lowered its stake in AIG to 77 percent in a share offering last month. The government’s plan to dispose of its holding may restore the confidence of commercial insurance buyers who shunned AIG in 2008 and 2009 as it was forced to take bailouts that totaled $182.3 billion, Cohen said.

“We did hear about commercial clients that scaled back the amount of insurance they purchased from the company,” Cohen said. “We believe that clients and brokers no longer have security concerns” about AIG’s Chartis unit.

Firms including Bank of America, Goldman Sachs Group Inc. and Deutsche Bank AG are initiating analyst coverage after helping the Treasury sell shares. Goldman Sachs has a “neutral” rating and Deutsche Bank advises investors buy AIG shares.

Bank of America said AIG may benefit from deferred tax assets accumulated after the company posted net losses of more than $100 billion in 2008 and 2009. The company had about $25.6 billion of the assets available as of Dec. 31 to help reduce future tax payments.

Cohen said the asset has a value of about $6 a share for the insurer. His calculation assumed that AIG may not make enough money to take full advantage before it expires.

--Editors: Dan Kraut, Rick Green

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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