AIG loses $7.8 billion as bets on complex financial instruments sour. Oil hits a new high, and analysts try to explain why. And the down economy pulls the plug on some nascent attempts at creative advertising.
NEWS AT A GLANCE
AIG loses $7.8 billion on bad credit bets
American International Group, the world’s largest insurer, reported a $7.81 billion quarterly loss and said it will raise $12.5 billion in the next few months to shore up its balance sheet. The loss was much bigger than expected, and AIG shares dropped 7 percent in extended trading. (AP in Yahoo! Finance) Also, credit rating agencies Standard & Poor’s and Fitch lowered AIG’s credit grade. Most of AIG’s losses stem from bad investments on credit default swaps and other once-lucrative complex instruments. (The New York Times) “One of AIG’s constant weaknesses has been its complexity,” said UBS analyst David Havens. “It’s come back to bite them.” (Bloomberg)
Oil tops $125 a barrel
The price of oil rose above $125 a barrel on the New York Mercantile Exchange for the first time early today. Analysts cited a number of factors in the rise, which follows a larger-than-expected increase in the U.S. crude inventory reported earlier in the week. (AP in Yahoo! Finance) Geopolitical tensions, a run-up in heating oil prices, and speculative investment from funds were all seen behind the record oil price. (Reuters) To head off the public outcry over high oil and gas prices, the American Petroleum Institute has launched a multi-million dollar public relations push to make its case that the high prices aren’t being caused by the U.S. oil industry. (The Washington Post, free registration)
Citigroup turnaround plan on tap
Citigroup CEO Vikram Pandit, in a meeting with investors and analysts today, is unveiling his plan to turn around the No. 1 U.S. bank, reportedly including a goal to sell up to $400 billion in non-core assets over several years. (Financial Times, free registration) Citigroup lost $5.1 billion last quarter, and has booked more than $40 billion of credit losses and writedowns since late last year. Pandit is widely expected to resist calls to break up the sprawling company, and announce plans to cut annual expenses by 20 percent. (Reuters) “My fear is they are going to do the great sacrifice at the altar of cost cutting,” said Peter Sorrentino at Huntington Asset Advisors. “Nobody makes big money cutting costs.” (Bloomberg)
Killing the spokesapple and the red wig
Among the victims of the U.S. economic slump are the Applebee’s “spokesapple” and Wendy’s odd red wigs. Both ad campaigns, launched last year, were pulled quicker than normal, after failing to immediately boost the restaurants’ bottom lines. The ads, one in which a red apple cracks jokes and the other where men in fake red ponytails demand fresh burgers, were seen as maybe too edgy for the family-oriented chains. But some analysts say the ads could have succeeded if given time, like Burger King’s popular but wierd “King” campaign. The spokesapple “gave some attitude to a brand that was lacking it,” said restaurant consultant Malcolm Knapp. “Applebee’s is not a cool brand.” (The New York Times)
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