AIG American International Group by Malcolm Berko on Creators.com

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AIG American International Group

Dear Mr. Berko: I'm an Army officer and have been in Afghanistan during the last 11 months. And in November 2008, I bought 1,000 shares of American International Group at $3 a share including commission costs. I recently came home and I see the shares are now $49. Can you please explain this to me and how it got so high and why I now only have 50 shares?! I heard from my brother-in-law, who is an insurance agent, that American International will have real good earnings next year and the year after ... like $7 to $10 a share. Please tell me if I should buy the stock and if it will pay a dividend because I now need stocks with dividends. — R.F., Aurora, Ill.

Dear R.F.: I don't like AIG; I never did and never will. I haven't liked AIG or CEO Maurice Greenberg since mid-1981 when I wrote an unkind article about the company. After my column was published, Maurice Raymond Hank David Greenberg told the CEO of my company that I should be fired. Now come to think about, there are four kinds of men I don't trust: (1) Men with multiple middle names, (2) Men who use an initial for their first name such as J. Bruce Swindle, (3) Men who use two initials and then their family name such as H.E. Swindle and finally (4) Men who have a Jr. or a number after their family name. Did you ever wonder why this is common among men and unheard of among women? Mr. Greenberg is known as a gruff, rough, tough, demanding, abrasive, dictatorial, egotistical man. However, his two sons, Jeff and Evan, lack the abrasiveness and ego of their father and are considered to be pretty good-guy Joes.

Anyhow, you didn't miss much while "officering" in Afghanistan. Your 1,000 AIG shares for which you paid $3 a share is now 50 shares at $50. The board had a 1 for 20 reverse split last July, reducing the AIG's 2.7 billion outstanding shares to 135 million and reducing your position from 1,000 to 50 shares. And while you paid $3,000 for that risky investment you now have (after the 1 for 20 reverse split) 50 shares at $50, worth $2,500.

In effect, you're out of pocket by $500. The purpose of the reverse split is to reduce the number of outstanding shares and increase their market price. And if you had been home in Aurora at the time of the split, you might have had an opportunity to follow "Berko's Rule No. 46, that states: "On the date a company affects a 'reverse stock split,' one can short the stock and buy it back some 20 percent and 25 percent lower in two or three weeks with a sweet profit." It seldom fails.

AIG is alive because it truly was too big to fail and because AIG's nefarious and criminal involvement in the derivative market was literally and figuratively holding the world's financial sector hostage. Certainly the Fed, the Treasury and the world's financial markets could have foundered, and confidence in the U.S. financial system could have collapsed with brutal consequences if the government let AIG go bankrupt. I'm not exaggerating! Hells bells, in late 1999, I spoke with SEC Chairman Arthur Levitt to tell him of the impending derivative dangers. He heard me, but he didn't listen. Oh, well, but I can say "I told you so."

But I'm not fond of the stock even though some analysts believe AIG will post attractive earnings in 2010 and 2011; in fact, two of these guys tell me that AIG will post earnings in excess of $9 a share. If you must increase your AIG position, I'd recommend that you also consider the American International Group 7.70 percent, preferred maturing at $25 in December of 2062. The symbol is AVF; the shares are rated BBB; they trade at $13 so that its $1.925 dividend yields a sweet 14 percent. Then purchase an equal dollar amount of common stock to create an artificial convertible with a nifty 8.62 percent current return. Not a bad deal, and you get a dividend you need while you wait. So with a bit of patience and AIG's earnings return, you might earn a handsome current return on the bond and the stock.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.