Twinning a $12.5bn capital raising with a 10 per cent dividend increase is a bit like hitting your average shareholder with a baseball bat while offering them a Band-Aid.

On top of their shock at American International Group’s record quarterly loss, investors were left bemused by the company’s mixed signals regarding its balance sheet on Friday. As in the previous quarter, AIG’s exposure to derivatives and the US mortgage market have prompted enormous write-downs. Book value per share plunged by almost 16 per cent in the first three months of 2008. AIG says its excess “economic capital” has dwindled to between $2.5bn and $7.5bn, against a preferred level of $15bn to $20bn – hence the capital raising. At the same time, the core business is said to be healthy.