AIG shares rise despite ratings downgrade

Its stock gained $1.12, or 5.3 percent, to $22.34. Earlier in the session, New York-based AIG was down as much as 4.4 percent at $20.29.

The insurer may need to raise $15 billion to cushion further losses tied to the U.S. housing market, analyst Nigel Dally said in a note to clients.

"We believe a sizable capital raise is likely, probably in the range of $10 billion to 15 billion, the majority of which is likely to be common equity," Dally wrote. He cut his price target on the stock to $25 from $35. The new price target still implies upside of nearly 18 percent over its closing price of $21.22 on Thursday.

The uncertainty being driven by AIG's financial products group and investment portfolio exposures leads us to believe that its debt ratings are highly vulnerable, Dally added.

Dally also said refinancing $39.95 billion of debt and interest due within the next 12 months could hurt pretax earnings by $1 billion annually.

He expects $2 billion to $4 billion in deferred acquisition costs and goodwill charges by year-end, which, given the current share count, would hit book value by roughly $1 per share, he said.

When called, an AIG company representative had no immediate comment.