Bloomberg News

AIG Posts Loss on Writedowns Tied to AIA, Mortgage Declines

November 04, 2011

(Updates with buyback authorization in sixth paragraph, ILFC impairment in 10th, Chartis in 15th.)

Nov. 3 (Bloomberg) -- American International Group Inc., the bailed-out insurer, posted its biggest loss since 2009 on declines in the value of mortgage investments, planes at its aircraft-leasing unit and a stake in a former Asian subsidiary.

The third-quarter net loss widened to $4.11 billion, or $2.16 a share, from $2.52 billion, or $18.53, a year earlier when there were fewer shares outstanding, according to a statement today from the New York-based company. The operating loss, which excludes some investment results, was $1.60 a share. The average estimate of 12 analysts surveyed by Bloomberg was a loss of 30 cents a share.

Chief Executive Officer Robert Benmosche, 67, is focusing on global property-casualty coverage and U.S. life insurance after scaling back in Asia and unwinding bets from the derivatives unit that drove AIG to the brink of failure in 2008. He is asking potential investors to look beyond market fluctuations in the insurer’s portfolio as he seeks private capital to replace Treasury Department bailout funds.

“As an insurance company, AIG is functioning pretty well,” Clark Troy, a senior analyst at Aite Group, in Chapel Hill, North Carolina, said in an interview before results were announced. They’re “being bitten by some of the mistakes from the past” on mortgage bonds and on market fluctuations in its stake of Hong Kong-based AIA Group Ltd.

Share Decline

AIG slipped 1.2 percent to $24.34 in extended trading at 4:33 p.m. in New York. The insurer has plunged about 49 percent this year, compared with a gain of less than 1 percent in the Standard & Poor’s 500 Index.

The insurer’s board approved the repurchase of as much as $1 billion in stock, AIG said in a separate statement. Timing of purchases will depend on “AIG’s financial condition, results of operations, liquidity and other factors,” the company said.

The results included a mark-to-market loss on AIA of about $2.3 billion. AIG retained a stake in the insurer after divesting two-thirds of the company last year in an initial public offering. AIA sank 17 percent in the third quarter as the European debt crisis and the possibility of the U.S. economy relapsing into recession weighed on financial-services stocks.

An agreement with underwriters prohibited AIG from selling any of its remaining stake until last month. The end of that lock-up period may have contributed to the Asian insurer’s share slide, said Cliff Gallant, an analyst at KBW Inc.

AIA Stake

“People are speculating that AIG is going to be a big seller,” he said before results were announced. “AIA’s operating results have been actually pretty good.”

The loss at the plane business, International Lease Finance Corp., widened to $1.3 billion as it incurred a non-cash charge of about $1.5 billion related to aircraft impairments. That compared with a loss of $218 million a year earlier for the Los Angeles-based unit.

AIG said in September that it plans to sell more than 20 percent of the subsidiary in an initial public offering and divest most of the unit over time.

The impairment reflects management’s review on “certain aircraft that would be disposed of prior to the end of their previously estimated life in light of technological developments in the aircraft industry, fleet management announcements by certain airlines, and our newly acquired part-out company,” Benmosche said in the statement.

Maiden Lane

Results were hurt by a $974 million decline in the value of mortgage-linked assets turned over to Federal Reserve-controlled investment vehicles known as Maiden Lane II and Maiden Lane III. AIG retains stakes in the facilities.

Estimated prices for certain subprime-mortgage securities rated AAA when issued in 2007 fell more than 8 percent to about 31 cents on the dollar last quarter, JPMorgan Chase & Co. data show. Investors shunned riskier bonds in the quarter as the housing market extended its slump, Standard & Poor’s downgraded the U.S. and Europe grappled with a debt crisis.

Adjusted pretax operating income for Chartis dropped to $442 million from $1.07 billion a year earlier on higher claims and expenses. Catastrophes, led by Hurricane Irene, cost the firm $574 million in the quarter, compared with $72 million a year earlier. AIG spent $1.06 for every premium dollar on claims and expenses, compared with 99.3 cents a year earlier.

Irene, which left more than 40 people dead from North Carolina to Maine, caused an estimated $3 billion to $6 billion in U.S. insured losses, according to an estimate from risk modeling firm AIR Worldwide.

Chartis

Sales at Chartis, which insures commercial property, corporate boards and airplanes, rose less than 1 percent to about $8.66 billion.

The company’s U.S. life insurance and retirement services division posted operating income of $444 million, compared with a $1.03 billion profit a year earlier as investment income declined and benefits and expenses increased. Premiums slipped less than 1 percent to $591 million and policy fees fell 2.2 percent to $658 million.

AIG repaid the last $21 billion it owed the Federal Reserve Bank of New York, and the Treasury converted its preferred stake into 92 percent of the company’s common stock in January. That holding was reduced to 77 percent in May when the government and AIG raised $8.7 billion selling shares at $29 each. The Treasury plans to wind down the rest of its stake through public stock offerings.

The Treasury would need buyers to pay an average of about $29.70 a share for taxpayer to recover a capital injection of $47.5 billion and unpaid dividends and fees of $1.6 billion, the U.S. Government Accountability Office said in a report in July.

--With assistance from Andrew Frye and Michael Moore in New York. Editors: Dan Kraut, Dan Reichl

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus