AIG Raising $20 Billion

The insurer will take in more than it had planned after a disastrous first quarter.
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Shares of

American International Group

(AIG) - Get Report

were slipping Tuesday morning, after the troubled insurer said it was raising more capital than it originally intended and selling businesses.

Speaking at a conference in London, CEO Martin Sullivan told investors that AIG planned to sell non-core assets and raise $20 billion through the sale of common stock, convertible and hybrid securities, far outpacing the $12.5 billion it originally had planned. The moves to shore up its balance sheet come on the heels of a

$7.8 billion first-quarter loss

tied to mortgage-related securities and credit derivatives.

Despite the loss, AIG increased its dividend, while suspending the share buyback program. In response, former CEO Maurice "Hank" Greenberg

severely criticized

the record losses and capital raising plans in a letter filed with the

Securities and Exchange Commission

.

Following the letter, Sullivan was under pressure to react and explain why no additional asset sales were planned, while shareholder value is diluted due to the capital raising tactics. Sullivan noted in the presentation that the effort to raise capital was to fortify the balance sheet and to withstand additional significant potential market volatility.

Cramer: SEC Needs to Investigate AIG

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Chris Winans, a spokesman at AIG, said strong demand allowed the company to raise more than it had planned. He said most of the sales had already taken place, including the sale of IPC in 2006. Another deal, to sell Allied World Assurance, has not yet closed.

AIG shares were falling 2.1% to $38.14 in recent trading.

Equity analysts did not react positively to the initial capital plan. David Anthony of Argus Research recently wrote the $12.5 billion plan "shows the severity of AIG's financial issues." He said Tuesday the higher amount did not change his opinion and kept a hold rating on the stock.

"The company is so big, an extra $6

billion, $7

billion or $8 billion is only a short-term, pressure point on the stock," he said. "It seems they are just preparing for what is going to evolve over the next year or so."

Goldman Sachs analyst Thomas Cholnoky this week downgraded AIG to neutral from buy and lowered his 12-month price target to $45 from $59. "

Market concerns over continued balance sheet pressures and the dilutive nature of capital raises will likely pressure share price performance," he said.

Like Wall Street banks

Merrill Lynch

(MER)

and

Citigroup

(C) - Get Report

, AIG's first-quarter losses came as a result of writedowns to the value of residential mortgage-backed securities, but also super senior credit default swaps, agreements to take on the risk of debt issued by a third party in exchange for most of the payment.

Other insurance companies have also struggled with the deteriorating fundamentals of the property casualty business.

Hartford Financial Services

(HIG) - Get Report

has seen its profits decline, while business was essentially flat at

Marsh and McLennan

(MMC) - Get Report

.

Insurance company

Genworth Financial

(GNW) - Get Report

also hit the market Monday with $600 million in bonds that it was selling, an increase over the $500 million it originally planned. Most of the insurance companies were sliding down in early morning trading.