Markets routed as AIG reveals $62B loss

AIG's quarterly losses amounted to some $460,000 per minute.
Global stock markets were reeling Monday as U.S. insurance giant AIG revealed a monumental quarterly loss of $62 billion and UK bank HSBC announced a huge slump in profits.

AIG’s announcement came hours after the U.S. government announced a $30 billion lifeline for the ailing company on top of $150 billion it has already received in bailout funding. In London, the FTSE dropped 4 percent in morning trading to hit six-year lows — with banking stocks leading the slide. HSBC was down more than 15 percent by 11 a.m. GMT after revealing a 62 percent slump in profits to $9.3 billion and plans to bolster its capital base through a $17.7 billion shares issue. Frankfurt’s DAX and Paris’ CAC were also down around 3 percent in morning trading. In Asia, Japan’s influential Nikkei average finished down 3.8 percent, while Australia’s All Ordinaries index closed down 2.8 percent. In Seoul, the KOSPI lost 4.2 percent and the Hang Seng index in Hong Kong dipped 3.8 percent. The global stocks slump suggests Wall Street could be in for another stormy session with U.S. markets teetered on the the edge of 12-year lows after bruising selloffs Friday. The Dow Jones Industrials closed down 1.7 percent at 7,063, while the broader-based Standard and Poor’s 500 lost 2.7 percent, to finish the week at 735. The tech-heavy NASDAQ lost about a percent and closed at 1,378. In a statement issued Sunday, the U.S. Treasury Department said the $30 billion in extra funding for AIG would “help stabilize the company, and in doing so help stabilize the financial system.” Despite AIG’s results — the largest quarterly loss in corporate history, amounting to around $460,000 per minute — analyst Robert Haines of CreditSights said letting the insurer fail was not an option because of the consequences for the wider financial system. “The government really does not have the option of letting AIG totally blow up,” Haines told “The counterparties on most of the book are (European) banks that would be hammered if the U.S. walked away. Hopefully, the third bailout will be the charm.” AIG, which had 74 million customers at the end of 2007, received government funding totalling $123 billion in September when bad mortgage debts left it on the brink of collapse. That sum was increased to $150 billion in November when the government revised its bailout package. AIG shares have lost 99 percent of their value in the past 12 months. Aside from AIG’s problems, a slew of U.S. economic data due to be released this week — including reports on housing, consumer spending, government spending, bank rescue efforts, manufacturing and the labor market — are expected to provide further evidence of a deepening malaise at the heart of the world’s largest economy. How Wall Street reacts to the news will be key. Investors continue to look for signs that the market has factored in enough of the bad news to at least stabilize, if not move higher. “That we are at 12-year lows tells you that we are in a period of enormous uncertainty and that nobody knows where the bottom is,” said Bernard McGinn, CEO at McGinn Investment Management. “It shows that people are losing their belief in equities as a way to grow assets, and that they’d rather put their money elsewhere,” he said. The S&P 500 and Dow industrials are now roughly 50 percent off their all-time highs from October 2007 and that has made some investors think that a big rally could be brewing, said Richard Sparks, senior equities analyst at Schaeffer’s Investment Research.

However, the retreat could easily surpass 50 percent, and the fact that some people are optimistic about the prospects of a rally concerns him. “That’s not what you see at a bottom,” Sparks said. “You usually see panic or apathy, and we’re not seeing either right now.”