AIG Turns Profit, Warns of 'Volatility'

By Brady Dennis
Washington Post Staff Writer
Saturday, August 8, 2009

American International Group, the insurance giant whose near-collapse threatened to bring down the financial system last year, on Friday reported its first quarterly profit since 2007, attributing the results to steadier performance in some of its businesses but warning that pitfalls could lie ahead in its restructuring.

The New York-based insurer, which was bailed out by the government in September, said it earned $1.82 billion, or $2.30 per share, through the three months ending June 30. During the same period last year, AIG lost $5.36 billion, or $41.13 per share.

Chief executive Edward M. Liddy said in a statement that operating results in the company's insurance businesses continued to be affected by weak economic conditions and fallout from AIG's meltdown a year ago, but he added that performance in those units had stabilized since the first quarter.

"We continue to focus on stabilizing and strengthening our businesses, but expect continued volatility in reported results in the coming quarters, due in part to accounting charges related to ongoing restructuring activities," he said.

AIG Financial Products, the unit that nearly felled AIG last fall with its faulty derivatives contracts, reported a $132 million operating loss in the second quarter, down from a $6.2 billion loss a year ago. The company said it continues to make progress dismantling Financial Products and unwinding its thousands of remaining deals.

AIG also said Friday that it had made modest headway in paying down its massive debt to the federal government, which has bailed out the global insurer repeatedly since September and has committed up to $182 billion to keep it afloat. In recent months, AIG has continued to sell off assets, including various consumer finance operations, an auto insurance business and its headquarters in New York and Tokyo.

But those sales have amounted to only a fraction of what the company owes taxpayers. On Friday, AIG said its asset sales through the first seven months of 2009 would generate an estimated $2.6 billion toward paying back its federal debt.

In June, the company also announced that it had reached a deal to reduce what it owed the Federal Reserve Bank of New York by $25 billion. AIG said that it would give the New York Fed preferred stakes in two of the company's crown jewels -- Asia-based American International Assurance, or AIA, and American Life Insurance, or Alico, which operates in more than 50 countries. It plans eventually to take the units public.

"We remain focused on the overriding goal of putting AIG in the best possible position to meet our obligations to stakeholders, including U.S. taxpayers, by protecting and enhancing the value of our businesses and positioning our key franchises for the future," Liddy said in Friday's statement, adding that "the time frame and path for achieving this goal will continue to be highly dependent on market conditions."

Friday's numbers were a drastic departure from March 2, when AIG reported a staggering $61.7 billion loss for the fourth quarter of 2008, the largest quarterly loss in U.S. corporate history. The company lost nearly $100 billion that year. That same month, news that the company had paid $165 million in retention bonuses to employees at AIG Financial Products infuriated Congress, President Obama and much of the nation.

The company's abysmal numbers took a slight turn for the better in late spring, when AIG said its first-quarter loss had narrowed to $4.35 billion from a $7.81 billion loss a year earlier.

AIG's return to the black on Friday marks a positive farewell note for Liddy, whose tenure has been marked by a series of crises and intense public scrutiny, and who is scheduled to leave Monday after 11 months on the job. It also provides some breathing room for Robert Benmosche, the former chief executive of MetLife, who was selected earlier this week to replace Liddy and become the company's fifth leader since 2005.

AIG's stock surged more than 20 percent on Friday, closing at $27.14 -- more than double its closing price a week ago.

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