Bloomberg News

AIG Rises as Insurer Posts Record Profit on Tax Benefit

February 24, 2012

American International Group Inc. (AIG) signage is displayed on the entrance to the building located at 72 Wall Street in New York. Photographer: JB Reed/Bloomberg

American International Group Inc. (AIG) signage is displayed on the entrance to the building located at 72 Wall Street in New York. Photographer: JB Reed/Bloomberg

American International Group Inc. (AIG), the bailed-out insurer, climbed after citing a return to “sustainable operating profit” as it booked a tax benefit that fueled record earnings.

AIG advanced 1.5 percent to $28.40 at 4:01 p.m. in New York, after rising as high as $30.09 earlier in the day. The government needs to divest its whole stake for an average of at least $28.72 a share to recoup taxpayer funds. The shares have closed below the break-even price on the New York Stock Exchange every day since late July.

The insurer now projects that it will generate enough profit to use tax assets, tied to prior losses, that can limit future payments to the government. AIG’s biggest unit, property- casualty insurer Chartis, and its plane-leasing business swung to operating profits in the fourth quarter, the New York-based company said in a statement yesterday as it posted net income of $19.8 billion.

“You’re definitely going to get a bounce” in the share price, Josh Stirling, an analyst at Sanford C. Bernstein & Co., said in a telephone interview yesterday. “The question is, How long and how sustainable is it?” He has a “market perform” rating on AIG.

The insurer, which booked a $17.7 billion tax benefit in the quarter, is among companies posting accounting gains as they return to profit after the recession. Ford Motor Co. said last month that it was removing a valuation allowance, created in 2006 as it began reporting operating losses, against deferred tax assets, because it expects future profits. The benefit contributed $12.4 billion to the automaker’s $13.6 billion of net income in the fourth quarter.

Remaining Businesses

After-tax operating income at AIG was $1.56 billion in the three months ended Dec. 31, compared with a loss of $2.21 billion a year earlier, according to the statement. Chief Executive Officer Robert Benmosche, 67, cited improvements at the company’s units and confidence in future earnings as part of the determination to record the tax benefit.

Chartis had fourth-quarter operating income of $348 million, compared with a loss of $3.97 billion a year earlier, when the unit took a charge of more than $4 billion because reserves proved inadequate. International Lease Finance Corp., the plane-leasing business, had operating profit of $119 million compared with a loss of $606 million a year earlier as impairments declined.

The results “confirmed its return to sustainable operating profit for the full year,” AIG said in a regulatory filing yesterday. “This, together with the emergence from cumulative losses in recent years and projections of sufficient future taxable income, represents significant positive evidence” that it will be able to use the deferred tax assets.

Full-Year Profit

Full-year net income of $17.8 billion compares with a $7.8 billion profit in 2010, when the company posted gains on the sale of American Life Insurance Co. and two-thirds of AIA Group Ltd. Book value per share, a measure of assets minus liabilities, rose to $55.33 on Dec. 31 from $45.30 three months earlier, on the tax benefit, AIG said.

“These companies always trade off their book value,” Gloria Vogel, an analyst at Drexel Hamilton LLC who advises clients to buy AIG shares, said in a phone interview yesterday. “The fact that they grew book value 22 percent” will be viewed favorably by investors.

The Treasury reduced its ownership of AIG in May to 77 percent by selling 200 million shares for $29 each in a public offering. AIG was rescued in 2008 as bets on the mortgage market soured. The bailout was revised at least four times, swelling to $182.3 billion as the U.S. extended more credit and lowered the interest charged.

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


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