Buffett (update: not) interested in AIG

UPDATE 1:50 PM.  CNBC NOW REPORTING BUFFETT IS NO LONGER IN TALKS WITH AIG.

Story at Bloomberg:

Billionaire investor Warren Buffett’s Berkshire Hathaway Inc. “is thought to be in talks” with American International Group Inc. about a possible investment, the Insurance Insider reported, citing unidentified sources.

AIG got below $4 but is now back to $6.  I’d be interested to hear what, specifically, is being discussed.  What’s Buffett going to buy?  Some of AIG’s insurance business is certainly a good fit for Buffett’s insurance operations at Berkshire Hathaway.  Aircraft leasing is still a good business.

But much of AIG is still a “black hole,” as Steve Leesman on CNBC likes to say.  Buffett likes to buy at the bottom, but only stuff he understands.  AIG’s balance sheet is both massive and opaque.

If Buffett is indeed talking to AIG, he’s likely focused on AIG’s good assets.

In other A.I.G. news, NY Governor David Paterson has said the state will allow the company to access capital in its subsidiaries:

American International Group Inc. will be allowed to access $20 billion of assets held by its subsidiaries, New York State Governor David Paterson said during a press conference on Monday. The move will allow AIG to use those assets as collateral to borrow cash to fund its day-to-day operations, Paterson explained.

This is not good news for AIG policy-holders.  NY State regulates AIG’s NY insurance business, including the amount of capital the company’s insurance subsidiary must have on hand.  That capital is meant to protect policy-holders, not AIG corporate.  And an insurance policy is only as good as the balance sheet of the company that writes it.  Theoretically, the insurance biz is walled-off in order to protect policy-holders from exactly the kind of panic hitting the company today.

Posted in Wall Street, credit crunch, stocks |