AIG Arrives at Crossroads: Is It Safe?

NEW YORK (TheStreet) -- American International Group(AIG Quote), once the largest U.S insurer, was a case study at Harvard Business School 10 years ago.

The Ivy League school focused on the company's operations and strategy. The trends identified included excess capital, deregulation, globalization and information technology. Where was that crystal ball when you needed it? Now AIG is a new case study: "AIG -- Blame for the Bailout."

Anyway, AIG's shares have risen 44% this year. Do investors have a chance of recovering the rest of their money? If the stock is up, what's the concern? Surely, the company hasn't been left for dead.

Thriving on the personality-driven leadership of Hank Greenberg, AIG moved into the financial-products business in the mid-1980s on condition that its AAA rating wouldn't be put at risk. That requirement was ignored. Under the leadership of Joseph Cassano, the risks that were taken were tantamount to gambling.

Those bets failed, and a company worth close to $190 billion in 2006 now has a market value of $6 billion. AIG owes the U.S. government $121 billion. With the U.S. Treasury and Federal Reserve providing $182 billion in help, most of it debt, AIG has managed to repay only $6.8 billion, according to SNL Financial.

AIG says it has a book value of $15.2 billion. A share price of about $45 suggests AIG has a 40% discount in price to book. That means there's exceptional risk.

Therefore, debt and uncertainty are AIG's biggest risks.