AIG: Here’s What’s Boosting the Shares

By Matt Phillips

After shares of bailed-out insurer American International Group Inc. jumped 6.7% yesterday, an analyst at UBS is reminding investors that the increase in AIG’s stock price helps fuel–wait for it–the increase in AIG’s stock price.

That’s because the non-governmental shareholders who own the stock when the U.S. converts its AIG preferred shares to common will get 75 million warrants entitling them to buy more stock at $45 a share over 10 years. Those warrants were out of the money when the arrangement was announced in late September. But shares have risen about 37% since then, and were at $51.35 in Wednesday afternoon trading.

UBS analyst Andrew Kligerman says a $1 increase in AIG’s stock raises the value of the warrants by 40c/share. The warrants are now worth $12 to $13 apiece, Kligerman says. UBS had previously valued the warrants at about $8 to $9 a share back when the stock was around $42 in mid-October.

Another factor that’s boosting AIG shares, according to the UBS, is an increase in the stock price of rival insurer MetLife Inc. AIG got the stake when it completed the sale of an Asian life insurer called Alico to MetLife on Nov. 1. MetLife shares have risen 8.5% since then, meaning AIG’s stake is worth nearly $10 billion.

AIG will use those MetLife shares to help repay its bailout under a plan finalized earlier this month.

Of course, the logic also works in reverse: a drop in MetLife shares hurts AIG, and a decline in AIG shares depresses the value of the warrants.

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QE2 Boosting Stocks Around the Globe

By Dave Kansas

How much did global stock markets like the launch of QE2 by the Federal Reserve last week? A lot.

This week is off to a more middling start. European shares are edging lower after Asian stock markets had another solid day, led by Tokyo’s 1% gain.

Let’s recap QE2 week. Asia – where a lot of those hundreds of billions of bucks are expected to end up – did best. The Nikkei gained 4.6% for the week, the Shanghai Composite rose 5.1% and the Hong Kong Hang Seng soared 7.7% to a nearly 3-year high. The Bombay Sensex 30 added 4.9% to clip a new record close while Australia and South Korea each gained 3%.

Europe’s big bourses all rose, with the FTSE 100 (up 3.4%) and the DAX (up 2.3%) both closing at fresh 2010 and 52-week highs. The Paris CAC-40 gained 2.2% and is a sliver off a new 2010 closing high.

On the home front, the Dow Jones Industrial Average gained 2.9% and is now up 18% since July 2. The Nasdaq Composite gained 2.9% and 23% since July 2. The S&P 500 jumped 3.6% and has rallied 20% from July 2. The Dow Jones U.S. Total Stock Markets Index gained 3.7% and is up 21% from July 2.

All in, plenty of green. Makes you wonder why global leaders are so irked with Big Ben Bernanke.

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