Wednesday, August 6, 2008

AIG Bad News, and More Bad News

AIG posted a $5+B dollar 2Q loss yesterday, and that is the bad news.

The "more bad news" is that there's more on the horizon. As one example: AIG listed about $21B of CMBS (Commercial Mortgage-Backed Securities). Of their CMBS investments, 24% were 2007 vintage; 32% were in either New York or California.

The CMBX spread since June 30th, the closing date of AIG's report, has already risen from 750 to 1000 bps. (An increase of the spread implies a decrease in the value of the mortgages.)

That's $21B that didn't even make the article in Bloomberg. Things like their $460B notional value credit default swaps, of which CDO exposure composes $80B, grabbed most of the column space.

However, as the chart above shows: More losses are already baked into the cake.

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