AIG Posts $61.7 Billion Loss, Faces Grim Future
Tuesday, March 3, 2009
Despite the latest federal bailout, American International Group still faces months of peril and uncertainty, a prospect that the company acknowledged yesterday as it reported staggering losses of $61.7 billion for the fourth quarter and nearly $100 billion for all of 2008.
AIG, in announcing the largest losses of any U.S. company in history, outlined a series of potential pitfalls, any of which could derail its efforts to pay back the billions of dollars it owes taxpayers and force it to ask the government for even more money.
Among the key concerns: Further deterioration in the value of AIG's assets, which could make selling them either impossible or foolish and could cause further harm to the company's balance sheet. The continuing departure of key employees, agents and customers, prompting even weaker earnings and doing more harm to AIG's bruised reputation. An additional downgrade of AIG's credit rating, which would trigger more demands for collateral from the company's trading partners and sink the insurer deeper in debt.
"If one or more of these possible outcomes is realized," the company noted in its annual report yesterday, "AIG may need additional U.S. government support."
The most recent rescue package, unveiled by the government yesterday, involves a combination of cash investments, debt relief and guarantees from the Treasury Department and Federal Reserve. The government announced it would provide up to $30 billion more in public funds to stave off further downgrades of the company's credit rating. By again overhauling the bailout, officials provided the ailing insurer with a luxury it had very nearly exhausted: Time.
The revised package frees AIG from having to sell its assets in badly depressed global markets and reduces costly dividend payments to the government, giving the company a measure of flexibility to weather the worst economic calamity in generations.
But many observers say it remains almost inevitable that the company will require even more help.
"It's just going to get harder," Rob Haines, senior analyst at CreditSights, said of AIG's reworked bailout. If the economy continues to tank, the company will keep posting massive losses and need more support. "In the near term, the government might have to bail them out again. It's just a fact of life," he said.
He added, "If there was no systemic risk, they'd be happy to let this company go. It'd be gone." But, he said, "AIG just happened to have this systematic kind of exposure. They just can't let it go."
Federal officials this week acknowledged that sinking tens of billions of taxpayer dollars into AIG is hugely expensive, but they insisted that allowing the company to fail would ultimately prove far more costly.
"The steps announced today provide tangible evidence of the U.S. government's commitment to the orderly restructuring of AIG over time in the face of continuing market dislocations and economic deterioration," the Fed said in a news release yesterday. "The additional resources will help stabilize the company, and in doing so help to stabilize the financial system."
That show of commitment was in large part what prompted the major credit-rating agencies to support the bailout revision and hold off downgrading AIG, despite the mammoth losses.