AIG's Real Mess Is Far From Over

If the mess at American International Group(AIG - Cramer's Take - Stockpickr) were over, I'd be urging you to buy this stock hand over fist at current prices.

The market for U.S.-style financial services, such as life insurance and annuities, is going to grow by leaps and bounds in the developing countries of India and China. As more people there achieve enough wealth, they will need to protect their financial futures.

AIG is better positioned than any of its global competitors to capture that growth. The stock is down about 30% from its 2005 high on Feb. 11, and it would be a table-pounding bargain if the worst were behind the company.

But it's not.

Oh, the worst of the accounting scandals are over, though investors don't yet know the exact bill the company faces. Investors should expect more restatements of earnings and reserves, more hits to capital and reserves, the discovery of yet more offshore affiliates that were little more than excuses for some very "creative" accounting, more fines and, ultimately, lawsuits.

But nothing on this long list of bad news events does significant damage to the company's competitive position and financial strengths -- even if the final bill turns out to be twice the $1.7 billion hit to net worth that the company now projects.

Greenberg Still Powerful

So why not buy today?

Because of the nonaccounting half of this mess. The investigation into the company's accounting has turned up a warren of offshore entities. The ones that concern me, and that keep me from buying the stock, are about accounting, for sure, but their biggest effect was to cement the power of ousted CEO Maurice Greenberg.

Greenberg may be gone from his chair at AIG, but he still heads offshore companies that own almost 16% of the company's stock and that control past and future bonuses for many of the executives that replaced his team. The battle to unwind these relationships and to regain control of corporate power from these offshore companies has already turned nasty, and it's by no means over.

Nibble at AIG shares, if you've the appetite, until it's clear that there's at least the outline of a deal to cut through this web of companies. The biggest threat -- and it's a sizable one -- now hanging over the stock is that these offshore companies will dump some or all of their AIG shares.

'Business as Usual'

AIG's accounting has been under scrutiny for a while now, but it was the investigation into a deal between it and the General Re unit of Berkshire Hathaway(BRKA - Cramer's Take - Stockpickr) that put the company in the headlines and forced the board to remove Greenberg. General Re transferred a block of insurance business to AIG, which would collect the premiums and take the risk for paying off on the policies.