Analyst credits short squeeze for AIG rally
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Comments Screener (190) Alert Email Print ShareBy Greg Morcroft, MarketWatch
NEW YORK (MarketWatch) -- Investors who were short shares of American International Group before a recent 20-for-1 reverse stock split are scrambling Wednesday to buy scarce shares to cover, driving the stock up more than 50%.
Miller Tabak analyst Peter Bookvar said on Wednesday that he's seeing a similar situation with shares of Georgia Gulf Corp , which also recently did a large reverse split.
"Georgia Gulf is another stock that had this big reverse stock split, and its stock went from $7 to $36 in five trading days. It's another example of where the float has dramatically shrunk, and now there's a massive short squeeze going on," Bookvar said. "There is certainly no news to account for it (AIG's stock move), he added.
AIG, which was rescued several times by U.S. taxpayers, who now own more than 75% of the company, recently named a new chief executive, and will report earnings on Friday.
The company has been the focus of intense criticism for its risky behavior writing what amounted to insurance contracts for risky subprime mortgages and other debt. When those debt securities' prices fell, AIG didn't have the money to pay off counterparties.
That's when the government stepped in to make AIG trading partners like Goldman Sachs and foreign government funds whole with taxpayer dollars.
Interestingly, short selling played a significant role in AIG's downfall as well as wreaking havoc throughout the financial sector last year.
Enviado: 5/8/2009 23:14