Skip to main content

AIG Rumor Mill: Is The Subprime Write Down Rumor Already Over?

Around noon today we started getting emails about American International Group. And right around that time, shares in the world's largest insurer dropped further than they had the most in two years, while the costs to insure AIG’s debt rocked 55 percent. The rumor that seemed to be driving the selling was word that the company would have to write down $10 billion in losses on assets linked to subprime mortgages.
The rumors are all over the wires now, of course. We almost regret we didn’t print it earlier—it’s kind of depressing when we can’t beat newswires with rampant speculations—but even here at DealBreaker we’re cautious about these things. There’s money to be made in rumors, and it’s important for even rumor mongers to make sure you’re not getting played by someone looking to manipulate the market. We were skeptical about the rumors because no-one we spoke to in a position to know had heard about the write-offs. The only people talking about it were people who had heard from someone who had heard from someone.
What seems to have driven the rumor is speculation following news that MBIA, the world’s biggest bond insurer, had reported a quarterly loss for the first time in its history after it was forced to mark down the value of guarantees on collateralized debt obligations. This combined with the fact that until this afternoon, AIG had no set a date for a release of its third-quarter earnings.
But what’s more startling is the quick recovery in AIG shares. After just about two hours of getting beaten down, the stock surged upward. At it’s low point today, AIG had dropped $4.31, or 6.8 percent, to $59.53. It closed today at $63.85, down just $1.84 or 2.88%. It seems that is was CNBC’s David Faber who pulled AIG out of the fire when facing a large securities write-down were "not true." His source was “someone in a position to know” which we take to mean AIG’s management itself. AIG helped things along by announcing that while they wouldn’t comment on market speculation they had suddenly decided that they will announce earnings on November 9th.
The fall and bounce of AIG today demonstrates how rattled investors are about these credit crunch write-downs. After Merrill’s losses turned out to be much worse than they had led investors to believe, many investors are ready to believe the worst. Rumors are driving markets because fear, doubt and uncertainty is everywhere.
AIG Write-Off Rumors Untrue []
AIG Falls on Speculation About Subprime Writedown [Bloomberg]