AIG shares slide 5 percent on mortgage fears

HAMILTON, Bermuda (Reuters) - Shares of American International Group Inc (AIG.N) fell sharply on Friday as investors worried the giant insurer, already beaten down by mortgage write-downs, could post more losses.

Concerns that housing finance giants Fannie Mae (FNM.N) and Freddie Mac (FRE.N) may be undercapitalized stoked fears across the mortgage insurance industry. AIG, which sells a broad range of insurance coverage, has a mortgage insurance division.

"AIG shares remain under pressure amid ongoing concerns about its exposure to the troubled mortgage market," said S&P equities analyst Catherine Seifert in a research note. The analyst added that the stock's low valuation was "warranted until clearer guidance emerges on how AIG's new CEO is going to deal with what (is) seen as its out-sized and multi-faceted exposure to the mortgage market."

Seifert cut her target price on the stock to $27 from $30.

AIG shares slid 5 percent to $22.79 on the New York Stock Exchange in afternoon trading, just off levels last reached in 1995.

The stock has fallen nearly 78 percent over the past year, as the insurer has written down billions of dollars in assets linked to subprime mortgages.

Investors are concerned that mortgage market losses from other AIG mortgage units could take more of a bite out of its bottom line.

Apart from mortgage investments, AIG provides mortgage insurance and has also been in the business of providing home loans through a consumer finance unit.

Others in the mortgage insurance business fared worse, with PMI Group Inc (PMI.N) and MGIC Investment Corp (MTG.N) losing 16 percent and 17 percent, respectively.