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AIG Will Sink or Swim Without Uncle Sam (Update 2)

The government's sale of shares follows AIG's announcement on Sunday of an agreement to sell "up to a 90% stake in International Lease Finance Corporation (ILFC), a non-core asset," to an investor group led by Weng Xianding, the chairman of New China Trust Co. Ltd. for about $4.75 billion.

The transaction values ILFC at $5.28 billion. AIG said that it would "retain at least a 10% ownership stake" in the aircraft leasing unit, so that the company can "continue to participate in the growth of ILFC's unique franchise, including the benefits that the investor group will bring to the company."

The company also said that "when the transaction meets the criteria for 'held for sale' accounting treatment, AIG expects to record a non-operating loss of approximately US$4.4 billion, which includes a non-cash charge of approximately $1.8 billion associated with the utilization of tax net operating loss carry forwards from this transaction."

Signs of P&C Underwriting Weakness


AIG on Friday announced that its "preliminary estimate" of losses from Hurricane Sandy would be $2.0 billion, net of reinsurance, or $1.3 billion after taxes. The company also said it expected to contribute $1 billion in capital to its AIG Property Casualty unit, after the unit had paid $2.4 billion in dividends to the holding company through the first three quarters of 2012.

AIG also said on Friday that the P&C unit had $49.6 billion in capital and that the parent company had total equity of $102.4 billion. So for AIG, Sandy is clearly "an earnings event, not a capital event," as Deutche Bank analyst Joshua Shanker wrote in a report on Monday.

Sandy will wipe out AIG's fourth-quarter earnings, with Shanker estimating a net loss of 16 cents a share and lowering his 2012 EPS estimate to $3.77 from $4.10, while lowering his 2013 EPS estimate by a nickel to $3.45."

Shanker said that the company's exposure to Sandy was "higher than we would expect," but also said that "a lack of gross loss detail could mean that AIG is reserving conservatively by reserving up to its retention, given the uncertainty still inherent from the event, and may result in favorable development in the future."

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