American International Group (AIG - commentary - Cramer's Take) reported a first-quarter loss of $7.81 billion, or $3.09 per share, which was worse than the Street's estimate for a loss of 76 cents per share and the $5.3 billion net loss of the fourth quarter.
Trends in the income from AIG's various operations were about as expected. Competition continues to increase cyclically in commercial property casualty insurance around the world. Personal property casualty in the U.S. had income down $100 million vs. last year, as the agency business especially is being hit by increased accident frequency in a cyclically more competitive market. Life and retirement services was about as expected. United Guaranty lost $352 million, and premiums rose 14%. Management still expects a terrible 2008 for this segment. American General Finance only earned $11 million but awaits a better consumer-lending environment while loss costs are still low. AIG Consumer Finance Group had only $11 million in earnings vs. $21 million last year as it makes non-capitalizable investments in expenses for lending in Poland and Latin America. The International Lease Finance Corporation (ILFC) subsidiary is still doing well. Asset management operating income fell to $154 million from $788 million due to lower hedge fund investment returns (about 3%), which were comparing against nearer 20% returns last year. AIG Financial Products (AIGFP) is doing well (excluding marks).
The culprits were marks-to-market in the accumulated other comprehensive income for the super-senior collateralized debt obligations (CDOs) and losses on its residential mortgage-backed securities (RMBS) investments going through regular income in mostly the insurance subs.
There were $5.7 billion in gross unrealized losses in the quarter, in the RMBS investments, about $3.8 billion of which came in the Alt-A portfolio (no surprise looking at Fannie Mae (FNM - commentary - Cramer's Take)), which now has a 23% loss against its amortized cost. Another $1.2 billion came against prime non-agency securities, including foreign and jumbo U.S. mortgagees. Here, much like in the upper senior AAA CDO portfolio, management says that it does not see much risk of long-term losses but, importantly, cannot make the case that the decline in value will be only temporary.
Financials NDAQ Makes Some Noise 5/8/2008 1:25 PM EDT The exchange reported operating EPS of 48 cents on $278 million in net revenue.
Financials AIG Preview: Some Wiggle Room 5/8/2008 8:32 AM EDT The average sell-side estimate calls for the company to swing to a loss of 76 cents per share.
Financials NDAQ Preview: In a Fluid Sector 5/7/2008 11:34 AM EDT Analysts are looking for 49 cents in EPS and $298 million in net revenue.
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