Friday, October 26, 2007

How big will the subprime hit be at AIG? Let's buy Northern Rock

From FT Alphaville:

The race is clearly on to find someone with a bigger crunch-related problem than Merrill Lynch. After the $7.9bn howler Merrill revealed on Wednesday, it can’t be long before the $10bn level is breached.

American International Group will certainly have a go, according to Friedman, Billings, Ramsey analyst Bijan Moazami, who is said by Marketwatch to be predicting a $9.8bn subprime-related hit at the big insurer.

Apparently, AIG has the largest subprime exposure of any insurer Moazami covers, although the analyst said that the likely hit was manageable - given AIG’s $104bn in shareholder equity.

Losses from AIG’s insurance investment portfolio could amount to $5.9bn Moazami estimated. The company has a RMBS portfolio of $94.6bn, of which $29bn is related to subprime and $21bn is backed by so-called Alt-A home loans, the analyst said....MORE

And from inthenews:

Equity firm eyes Northern Rock

A US private equity firm has confirmed that it is interested in beleaguered lender Northern Rock.

In a statement JC Flowers formally declared its interest in buying the Newcastle-based bank, acknowledging that it was in "continuing discussions" with the takeover target's board in respect of a possible offer.

Analysts say a bidding war could now break out over Northern Rock, with Sir Richard Branson's Virgin group having already confirmed that it is part of consortium that is planning to launch a rescue bid for the troubled company.

Under plans being considered by the consortium, which includes AIG and American and Far East investors, Northern Rock would be rebranded under the Virgin Money name.

the Wall Street Journal's take.