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You might be wondering about what happened to AIG shares. The answer is simple: the company decided to make a reverse stock split.

Following that measure, American International Group Inc (stock ticker: AIG) shares of this troubled insurer were down $4.53, or 19.5 percent, to $18.67 in early-afternoon trade on the New York Stock Exchange (NYSE).

The reverse split was approved at the AIG annual meeting on Tuesday. The shares closed at a pre-split $1.16 on Tuesday.

The only consequence of this reverse split is to seek some kind of psychological advantage, since the share price was too low, but what they were hoping for did not occur.

Before the split, the shares had traded below $2 for much of the year, weighed down by the company’s nearly $100 billion in losses last year and a taxpayer bailout that left the U.S. government owning a nearly 80% stake in the company.

The shares also fell sharply on Tuesday after Chief Executive Ed Liddy said at the annual meeting that he could not give any assurance that the shares would ever recover or that the U.S. government would ever relinquish its majority ownership of the company.

AIG disclosed its plans for the reverse stock split in a regulatory filing on May 21, but the news was overshadowed by an announcement that same day that Liddy planned to step down as CEO and chairman once successors were found.The giant government-owned insurer also proposed increasing the number of authorized shares of its common stock from 5 billion to 9.225 billion.

Another proposal would increase the number of authorized shares of AIG preferred stock from 6 million to 100 million, according to the filing.

This reverse split is undoubtedly to ensure that AIG can remain listed on the NYSE which abohors stocks less than a dollar in share price. It will do nothing for the shareholders but, as someone commented earlier, bring on dilution with more shares being issued.

These measures are not good for the company, since it implies less value to shareholders and shows how the management is desperately looking to raise cash.

Here is the share price evolution of the last 3 months of AIG :

We can clearly see that the reverse split had a negative effect. Our recommendation is to sell AIG shares since even the chairman said that the shares might possibly never recover.

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