American International Group, Inc. (AIG) ended up getting more heavily influenced by a very negative brokerage firm research call than what had been seen early on this morning. Sanford Bernstein reiterated an “Underperform” rating on AIG.  The real  blow is in the target price-cut that was thrown in. Bernstein’s old target was $20.00, which implied almost 40% downside to Friday’s closing price of $33.30. The new target is a whopping $12.00, which implies downside of over 60% to Friday’s closing price. To add insult to injury, today’s reaction may create more risks than just what the research note pointed out.

The harshness was that Bernstein noted how the loss reserves are significantly deficient again. Of course the $11 billion sounds significant, but the issue in a company the size of AIG is that most analysts cannot rely upon a balance sheet analysis. How much is a policy really worth? Or how much is a loan worth? And in all of the over-the-counter derivatives and credit default swaps, what is the real exposure compared to what is listed? That makes every target on the books at AIG (and major troubled banks and financial institutions) more of an estimate rather than a hard and final figure. 

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When you see fundamental research calls like this, there is of course going to be some serious room for debate. The firm’s research cited new data suggesting that AIG has additional delinquencies in the company’s loss reserves worth approximately $11 billion. This is deemed as new risk and new uncertainty for holders. It also adds to the risks of how Uncle Sam will react if there are further troubles at AIG.  This is perhaps the largest public outcry event of the entire rescue, and it seems likely that members of Congress could use this all week to get more free air-time with new AIG outcries.

Chart events are different than news events. The problem is that today’s price action got worse, and it may create a significant technical event if it continues. AIG soared through the 200-day moving average on the upside in late-August and ultimately the stock almost doubled within the next month to very briefly challenge that $50 handle. Now shares are far lower back under $30.00 and the 200-day moving average is dead in focus. That is listed as $28.98 today for a simple moving average. So far we have an intraday low as $28.94 before shares recovered mildly back above the $29.00 mark. 

Bernstein’s research call was based upon new fundamentals today. It is still arguable as to whether a chart on AIG matters as much as the headline sentiment of any given day. Either way, it looks like today’s price action is putting an added technical risk into AIG shares right around the current price.