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AIG posts $4.1 billion loss - Nov. 3, 2011

NEW YORK (CNNMoney) -- American International Group is back in the red. Way in the red.
The bailed out insurer posted a net loss of $4.1 billion on Thursday, a loss per share of $2.16 for the third quarter. While analysts hadn't expected the company to post a profit, the size of the loss exceeded expectations.

The outsized loss sent AIG (AIG, Fortune 500) shares lower after the closing bell, with prices dropping more than 1% to $24.35. And that's bad news for taxpayers, since the U.S. Treasury still owns a substantial chunk of AIG.

Back in 2008, the government agreed to help the giant insurer get back on its feet with a $180 billion lifeline. AIG has been slowly working toward paying back that loan. But declining profits, and a recent drop in share price make that a much tougher task.

If the government is to be made whole, AIG will have to find a way to boost its share price. Shares now sit well below $28.72 -- the breakeven point for Treasury's investment.

Separately, AIG announced Thursday that its board of directors had authorized a $1 billion share buyback, a sign the company views its stock as undervalued.
:facepalm:

Maybe Drew can help me understand this - they post a 4.1 BILLION dollar loss, and then decide to spend another billion buying shares... Of their own sinking stock?
 

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Dream Crusher
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AIG posts $4.1 billion loss - Nov. 3, 2011

:facepalm:

Maybe Drew can help me understand this - they post a 4.1 BILLION dollar loss, and then decide to spend another billion buying shares... Of their own sinking stock?
Because they think their stock is undervalued. So, they're buying it back in the hopes that it will go back up and thus allow them to make more money.
 

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Dream Crusher
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Plus, by buying it up, they're hoping to increase it's value by decreasing the supply anyway.
 

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Because they think their stock is undervalued. So, they're buying it back in the hopes that it will go back up and thus allow them to make more money.
I caught that part of it. They probably also think they deserve their salaries as well.
 

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Is Actually Recording
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Because they think their stock is undervalued. So, they're buying it back in the hopes that it will go back up and thus allow them to make more money.
Plus, by buying it up, they're hoping to increase it's value by decreasing the supply anyway.
Yes and no. A stock buyback decreases the number of shares outstanding - it's pretty much the exact opposite of an IPO. It makes sense for two reasons - one, because by decreasing the amount of shareholder equity, they potentially increase the percentage of owner equity as a part of total equity. By taking cash (owner's equity) and trading it for shares (and thus getting them off the market) at what they consider a favorable price, they now own "more" of the company.

To me, however, while that's certainly a factor (a company wouldn't buy back shares they consider extremely overvalued) this is more a defensive play on their part. They posted a loss, probably a larger than expected loss. Normally that encourages people to start selling shares, which drives down the price of the stock. By engaging in a stock buyback, they send the message that management considers the stock significantly undervalued at current prices. Since generally it's assumed management has a better understanding of the condition of the company than your average investor, this should increase demand for the stock (as if it's undervalued then it should increase in value as investors have more time to get a clearer picture of its true fundamental value) which would in turn increase the price. It also sends the message that management doesn't expect losses to continue, else they wouldn't be blowing cash on hand to buy back equity.

Basically, from ten thousand feet it looks like a kind of ballsy move to stabilize their stock price after a negative earnings surprise. If management is correct that they're undervalued (and, IMO, most of the financial sector IS right now because public perception is so strongly against them and because of the aftereffects of the crash), then it's actually a fairly savvy move.
 

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How is that legal/fair to their investors, though?

"Our stock is in the toilet, so we, the guys who are responsible for sending it there, are going to buy it because we don't think we're as inept as our market price indicates."

Is that not the general jist?
 

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Is Actually Recording
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How is that legal/fair to their investors, though?

"Our stock is in the toilet, so we, the guys who are responsible for sending it there, are going to buy it because we don't think we're as inept as our market price indicates."

Is that not the general jist?
How is that fair to investors? It increases demand, and thus share price, for the shares the investors own. Generally, if you're an investor, there are three things you want a company to do with any cash on their balance sheets (because cash just sitting there owns nothing and doesn't increase shareholder value). You want it paid out as a dividend (increasing shareholder value), uxsed to finance stock buybacks (increasing shareholder value), or invested into a project with an estimated net present value significantly higher than the cash outlay (increasing shareholder value).

What they're doing is far better than just sitting on a defensive cash position, for your common shareholder.

A little background:

Share Repurchase Definition

Basically, by decreasing the # of shares in the market, you increase Earnings Per Share, and EPS is one of the main drivers of equity valuation.
 

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AIG underwrites the pensions for eveyone on Captial hill.
We should've let this company go under. No one outside of the DC area would've even noticed.
More fucking hypocrisy coiming out of Washington.
 
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