The Battered Stock: AIG

In general, financial services funds have plummeted this year on concern
about higher interest rates and regulatory investigations that have hit
some of the sector's largest companies. The Financial Select SPDR ETF
(XLF) lost more than 3.6% this year.

This ETF and many other financial sector funds counts on the battered
insurer American International Group, Inc. (AIG) as one of their largest
holdings. As you are aware, AIG is undergoing intense regulatory scrutiny
and management changes. AIG filed its long-awaited 2004 annual report
with the Securities and Exchange Commission on Tuesday, restating
financial results for the past five years. As part of the restatement, AIG
cut shareholders' equity at Dec. 31, 2004 by $2.26 billion, or 2.7%, to
$80.61 billion, less than the $2.7 billion reduction the company had
projected earlier. This included an after-tax reduction of $1.19 billion for
changes in estimates for the fourth quarter of 2004. Revised calculations
lowered AIG's profits by nearly $4 billion for the five years since 2000.

Yet, over the last many weeks, many analysists and especially contrarions
are expressing a strong argument in favor of AIG regaining its footing in
reasonable time-scale. They think that there is a lot of bad news already
priced into the stock and that it's trading below what it's worth.

For example, Morningstar quotes $80 a share as a fair value estimate for
AIG, whereas the stock closed Tuesday at $55.55 - representing a Price
to Earning Ratio 13.4 - with a dividend yield of 0.90%.