AIG Adds Derivatives Blunder

Updated from 9:52 a.m. EDT

American International Group(AIG Quote) expanded the scope of its long-expected earnings revision, saying a four-year restatement of financial results will include reductions to shareholder equity of $2.7 billion, or 3.3%.

That's about $1 billion more than previously estimated. Still, the news led Moody's to cut its rating of AIG's long-term debt to Aa2 from Aa1.

Ironically, the bottom-line impact of AIG's accounting mistakes could be lessened by a newly disclosed blunder involving the insurer's accounting for derivative instruments. AIG said it was undercounting the value of some of its derivative contracts to the tune of $2.4 billion. ...