AIG capital raising adds $20 billion; shares fall

By Lilla Zuill

NEW YORK (Reuters) - American International Group Inc's (AIG.N: Quote, Profile, Research, Stock Buzz) recent issue of equity and debt is expected to raise about $20 billion, far more than initially expected, Chief Executive Martin Sullivan said on Tuesday.

AIG shares dropped to their lowest level in nearly 10 years in morning trade, with investors concerned over the dilutive effect of the capital-raising and fearful that the company will post more losses on the mortgage-linked assets that have driven two quarters of record red ink.

AIG, the world's largest insurer, raised $13.4 billion last week -- far more than the $7.5 billion originally planned -- through the sale of 196.7 million common shares at $38 each and 78.4 million equity units at $75 each.

"We anticipate this capital raise will be roughly 8 percent dilutive to AIG's annualized earnings per share," Lehman Bros analyst Jay Gelb wrote in a research note.

Merrill Lynch cut its view of AIG's earnings for 2008 and 2009, citing dilution from the capital raising. It lowered its 2008 view to $2.30 a share, and for 2009 to $5.50 a share, 35 cents below its earlier estimate.

The balance of AIG's $20 billion capital raising is coming from sales of fixed-income securities being sold in various currencies.

"We believe it would have made more sense to suspend the annual dividend expense of $2.2 billion and reduce the capital raised to minimize dilution to shareholders," Lehman's Gelb wrote.

AIG raised its dividend by 10 percent earlier this month as it reported a record first-quarter loss of $7.8 billion.  Continued...