Insurance
AIG Battered by Derivative Writedowns
Nat Worden
05/08/08 - 06:01 PM EDT
American International Group AIG reported after Thursday's closing bell that it lost $7.81 billion in its first quarter due to heavy writedowns on credit-default swaps and mortgage-related investments.
The insurance giant became the latest in a long string of major U.S. financial institutions to shore up its financial position by raising about $12.5 billion fresh capital through a common stock offering and an equity-linked offering.
"While we anticipated a difficult trading environment, the severity of the unrealized valuation losses and decline in value of our investments were beyond our expectations," said AIG CEO Martin Sullivan.
AIG said it lost $3.09 a share, compared with earnings of $1.58 a share, or $4.13 billion, during the year-ago period. The results disappointed Wall Street, where analysts, on average, had expected a loss of 76 cents a share, according to consensus estimates reported by Thomson Reuters.
Shares of AIG shed 93 cents, or 2.1%, to $44.14 during regular trading on Thursday after Standard & Poor's analyst Catherine Seifert slashed her earnings estimate for the Dow component to an operating loss of $1.10 a share, down from her previous estimate for earnings of $1.22 a share.
In after-hours trading, the stock was rebounding, up 68 cents from its close.
The company lost $9.11 billion on its credit-default swaps portfolio, and it lost $6.09 billion on investments tied to the mortgage market. It also lost $352 million on its mortgage insurance business, United Guaranty.
AIG already took an $11.5 billion writedown in the value of its derivatives portfolio last year shortly after it assured investors that it had "little to no exposure" to asset-backed commercial paper, structured investment vehicles or collateralized debt obligations tied to residential mortgage-backed securities.