CHARLOTTE, N.C._American International Group Inc. shares continued their free fall Thursday after a Citigroup analyst said there is a high probability that the insurer's equity is zero.

Shares dropped $2.83, or 20 percent, to $10.48 in late morning trading.

Last week, shares of the New York-based insurance giant plummeted after a 1-for-20 reverse stock split was approved at the company's annual shareholders meeting on June 30. Shares of AIG closed at $1.16 that day, which is equivalent to $23.20 assuming the reverse split.

In a note to clients Thursday, Citi Investment Research analyst Joshua Shanker said the continued risk of more credit default swap losses and its management's eagerness to sell off businesses at a low value jeopardizes AIG's equity position.

"Such collateral calls could also pressure rating agencies to lower their credit ratings for the company, leading to a similar cycle to the one that the company experienced prior to the massive government intervention in the third quarter," Shanker wrote.

He cut his price target on AIG stock to $14 from the split-adjusted target price of $36. Shanker maintained his "hold" rating.


Once the world's largest insurer, AIG nearly collapsed last year because of losses from credit default swaps. Last week, the company disclosed in a regulatory filing last week that it could face additional losses on those swaps remaining on its books.

Credit default swaps are essentially insurance contracts protecting an investor against default on an underlying investment, such as mortgage-backed securities. Underwriting of the risky contacts were at the heart of AIG's near collapse last fall when it took an initial $85 billion bailout from the government to remain in business.

AIG has since received additional loan packages from the government, which now total $182.5 billion. The government has received an 80 percent stake in the insurer as part of the loan package.

The company is in the process of shedding assets and spinning off some of its subsidiaries in an effort to repay the government and return to profitability.

On Thursday, AIG was said to be discussing a possible deal to sell all or part of one of its foreign life insurance units to MetLife Inc., according to published reports.

Both AIG and MetLife declined to comment on the report.

"While AIG may be able to repay U.S. investment and some debt with core asset sales, the remaining businesses may be those that generate lower return on equity, handicapped by a high debt burden," Shanker wrote.