AIG reports $5 billion loss
American International Group Inc. said Wednesday that it lost more than $5 billion in the second quarter, as struggling credit markets stripped several billions of dollars in value from its credit default swaps portfolio and other investments.
The world’s largest insurer lost $5.36 billion in the April-to-June period, or $2.06 per share. In the same period last year the company earned $4.28 billion, or $1.64 per share.
After excluding one-time items, the loss per share came to 51 cents — much worse than the 63-cent gain that analysts were anticipating.
Shares of AIG (AIG, Fortune 500) fell more than 7% in after-hours trading, having fallen 80 cents, or 2.7%, to close Wednesday at $29.09.
AIG’s third straight quarterly deficit occurred after it took a loss of $5.56 billion, or $3.62 billion after taxes, in what are called credit default swaps, and a write-down of $6.08 billion, or $4.02 billion after taxes, in the value of other investments.
Credit default swaps, which slammed AIG in previous quarters as well, are essentially insurance policies to protect bondholders against defaults. Over the past three quarters, AIG has lost more than $25 billion, pre-tax, to credit default swaps, and more than $15 billion, pre-tax, in other investments.
Financial institutions that bet heavily on risky mortgage-backed securities have been pummeled since the start of the credit crisis. When the mortgages underlying these securities began failing, the value of the investments plunged, forcing companies including AIG to heavily mark down the value of their holdings.
Investors’ abandonment of the credit markets last year brought the value of debt securities down even further, and the continuing wave of foreclosures this year has extended the losses at financial companies.
Further dampening its second-quarter results, AIG’s general insurance segment saw a 54.3 percent decline in operating income to $1.39 billion, and its life insurance and retirement services division saw a 10% decline in operating income to $2.61 billion. The company’s asset management unit also suffered a decline in income.
Back in May, having posted two consecutive quarterly losses, AIG decided to raise capital in an effort to improve its financial standing easy quick payday loans. AIG said Wednesday that it raised approximately $20 billion in capital through the sale of $7.47 billion of common stock, $5.88 billion in equity units and $6.91 billion in certain fixed-income securities.
Then in June, the insurer replaced its then-CEO Martin Sullivan with Citigroup (C, Fortune 500) Inc. veteran Robert Willumstad.
Willumstad said at the time that he would review AIG’s businesses, and that there were "no sacred cows." The CEO reiterated those thoughts Wednesday, and said the insurer will report on its progress in late September.
"Our second quarter results were adversely affected by the severe conditions in the housing and credit markets and a very difficult investment environment," Willumstad said in a statement. "These results do not reflect the earnings power and potential of AIG’s businesses and it is clear that we have a lot of work to do to restore AIG’s profitability to where it should be."
AIG executives will hold a conference call to discuss the company’s results with investors on Thursday at 8:30 a.m. ET.
The second quarter has been a difficult one for not only AIG, but the entire insurance industry. The sector struggled through tight financial markets, as well as storms that ravaged the Midwest and South.
The Travelers Cos., Hartford Financial Services Group Inc. and MetLife Inc. all posted profit declines for the April-to-June quarter, and Genworth Financial Inc. reported a quarterly loss driven by credit-related investments.
Earlier Wednesday, insurance broker Marsh & McLennan Cos (MMC, Fortune 500). said its second-quarter profit tumbled 63% after its investment portfolio and its risk consulting and technology business lost value.
Still, insurers generally have not been hit as badly as investment and commercial banks by the credit crisis.
Merrill Lynch & Co. (MER, Fortune 500) and Citigroup Inc. have each reported write-downs totaling about $46 billion since the credit crisis began a year ago; globally, financial companies have written down some $300 billion in failed credit investments.
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