AIG posts quarterly loss of $8.9 billion

By Brady Dennis
Saturday, February 27, 2010

American International Group on Friday posted a fourth-quarter loss of $8.9 billion, or $65.51 per share, as the company sold large stakes in its insurance businesses in an effort to whittle down its massive debt to taxpayers.

The dip back into the red ends the bailed-out insurance giant's run of two consecutive profitable quarters. But it marks a vast improvement over the $61.7 billion loss the company posted for the same period a year ago -- the largest quarterly loss in U.S. corporate history.

"I think it's fair to say that we made substantial progress in refocusing our business on growth and profitability, and we set in place the framework for repaying the U.S. taxpayers for their support of our company during its darkest days," AIG chief executive Robert Benmosche said. "While we are not out of the woods by any stretch, these numbers represent a substantial improvement from just one year ago."

Overall, AIG recorded a loss of $10.9 billion for 2009, compared with a nearly $100 billion loss during 2008.

AIG said Friday that its losses during the final three months of 2009 were largely attributable to restructuring costs.

In early December, the company gave the Federal Reserve Bank of New York preferred stakes in two of its crown jewels -- Asia-based American International Assurance (AIA) and American Life Insurance Co., or Alico, which operates in more than 50 countries. The deal reduced AIG's outstanding debt to taxpayers by $25 billion.

AIG said it took a $5.2 billion charge related to that deal. It also recorded a $2.8 billion loss for its pending sale of Hong Kong-based life insurance company Nan Shan, as well as a $2.3 billion charge for strengthening its loss reserves.

AIG also said it continues to shrink the number of trades and outstanding exposures at its Financial Products unit, where troubled credit derivatives contracts brought the insurance giant to the brink of collapse in 2008 and prompted a massive federal bailout, which eventually grew to a total commitment of $182 billion.

The Financial Products unit reported operating income of $80 million in the fourth quarter of 2009, compared with a $17.2 billion operating loss in the fourth quarter of 2008. The results included significant increases in the value of the firm's credit-default swap portfolio, the same sector in which past declines in value had wreaked such havoc.

Benmosche said Friday that AIG would continue to become "a smaller and more focused company than in the past" and that the only way it could repay taxpayers is to continue to divest parts of its vast global operations.

The company warned that pitfalls remain as it tries to shed its heavy government debt and return to viability. AIG said in its public filing that it "may need additional support from the U.S. government" if interest rates or borrowing costs increase, if it cannot find willing buyers for its assets, or if it encounters significant deterioration in its core businesses.

Still, Benmosche struck a mostly optimistic tone.

"We are increasingly confident in how we see the mix of AIG's businesses over the long term," he said. "We are taking the right steps to regain our stature as one of the most respected and diverse property-casualty operations in the world, with a strong U.S. life and annuity operation and several other businesses that will enhance our nucleus, help us to meet our goal of repaying taxpayers and provide value to the communities where we operate."

In the wake of national outrage over bonus payments at the company, Benmosche noted that AIG has "revised our employee compensation programs in order to motivate and reward AIG's outstanding professionals who will form the nucleus of our business success going forward."

AIG elected not to hold a conference call to discuss its results, although Benmosche did record an audio message to investors.

Friday's results, although far better than a year ago, fell short of what many analysts had expected. Shares of AIG fell $2.74, or 10 percent, to close at $24.77.

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