AIG Continues to Shrink the Balance Sheet

There is no help coming from AIG's (AIG - commentary - Cramer's Take) earnings release. In a massively confusing report, AIG wowed the Street with a huge revenue miss and plenty of write offs.

The crux of it for investors: the insurer reported a $5.5 billion pre-tax charge for writing down credit default swaps. This is better than the prior two quarters that saw almost $20 billion of such markdowns.

After the release, some analysts reiterated the view that much of these markdowns will be reversed in the years ahead. But for now, they are what they are.

There was also a $6 billion charge for "capital losses." This was a charge for RMBS (residential mortgage backed securities) and was about the same as last quarter. The basic businesses all showed signs of struggling, but our focus is on the balance sheet and the implications for the credit crisis.

If a financial company in this environment can "kitchen sink" a quarter, this would be one. I'm sure the new CEO, Robert Willumstad tried to take all the pain up front, but we have seen any number of attempts to do that over the past year.

Book value figures out to about $29. The stock sold off sharply in after hours trading and this report will be a challenge for the market.

On a better note, there is a lot of talk about Microsoft (MSFT - commentary - Cramer's Take) implementing a $20 billion stock repurchase. Microsoft has not commented.

The company still has about $3 billion remaining on a $36 billion program announced a few years ago. About $20 billion has been purchased in each of the last two years, so a new buy back would have to be done rapidly, like in a quarter if it were to have an impact on the stock price.

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Vincent Farrell Jr. is chief investment officer for Soleil Securities Group and a regular guest on CNBC and other national print and broadcast media.

Prior to joining Soleil in August 2008, Farrell was a principal of Scotsman Capital Management. Before that, he was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.