Updated from 1:14 p.m. EST
American International Group
confirmed widespread reports on Monday by reporting a huge quarterly loss and saying the government will provide additional aid to keep the insurance giant solvent.
The Treasury Department has created a new $30 billion equity capital facility in exchange for non-cumulative preferred stock in AIG, in addition to the $150 billion it has already lent the insurer. The Treasury and the
also outlined a massive restructuring plan for AIG's existing debt, easing up on terms and accepting payment in the form of preferred stakes in relatively healthy subsidiaries.
The new plan was unveiled as AIG reports a record fourth-quarter loss of $61.7 billion, or $22.95 a share. Those results compare with a loss of $5.3 billion, or $2.08 a share, a year earlier, and drastically fell short of estimates. Analysts surveyed by Thomson Reuters, on average, forecast a loss estimate of 37 cents a share on revenue of $24.82 billion.
Despite the dour report, and a broad market decline, AIG shares surged nearly 24% during Monday trading. The stock closed flat at 42 cents. A year ago, it traded near $47.
Following the loss and restructuring announcements, Moody's and Fitch affirmed ratings for some types of AIG debt and said that the plan provides some stability. However, Moody's issued a "negative" outlook, citing potential loss of customers, distributors and employees, as well as uncertainty regarding ownership and capital structure.
Moody's confirmed AIG's senior debt at "A3," and the financial-strength rating on the core property and casualty business that AIG plans to retain. However, it downgraded subordinated debt to "Ba2" from "Baa1." Fitch affirmed "A" ratings for long-term issuer default rating and senior-unsecured debt, as well as an "AA-" financial strength rating for insurance subsidiaries. However, it downgraded junior subordinated debt and trust-preferred securities to "BB" from "A-", with several remaining on "rating watch."
AIG's losses were driven by unfavorable credit market conditions and writedowns on its investments, including credit default swaps and residential-mortgage-backed securities that were wiped off AIG's books and placed into a facility run by the
Bank of New York last Fall.
As part of a rescue plan outlined at the time, the Fed lent AIG $60 billion in exchange for preferred stock with hefty dividends. AIG has drawn $38 billion from the facility, but was unable to pay its debt, forcing the government to ease up on terms in a broad restructuring plan outlined Monday.
The Fed will now reduce AIG's revolving credit facility and will accept payment for the $38 billion loan plus interest in the form of preferred stock in two relatively healthy AIG subsidiaries, American Life Insurance Co. and American International Assurance Co. The Treasury also said will exchange its existing $40 billion in preferred AIG stock for new preferred shares "that more closely resemble common equity and thus improve the quality of AIG's equity and its financial leverage."
had been shopping those and other assets in the private market in order to repay its debt to the government, but was unable to find attractive bids.
The action by the Treasury and Fed marks the fourth time the government has stepped in to help AIG since its initial lifeline in September 2008. The agencies said they worked with AIG to restructure the debt because it was simply too big and "systemically important" to fail.
"The U.S. Treasury Department and the Federal Reserve Board today announced a restructuring of the government's assistance to AIG in order to stabilize this systemically important company in a manner that best protects the U.S. taxpayer," the agencies said in a joint statement. "Specifically, the government's restructuring is designed to enhance the company's capital and liquidity in order to facilitate the orderly completion of the company's global divestiture program."
In the fourth quarter, AIG's general insurance business swung to a loss on $2.8 billion in net realized capital losses. General insurance net premiums dropped 16.3% to $9.2 billion, and net premiums earned fell 5.9% to nearly $11 billion.
Adjusted to exclude certain items, operating losses totaled $37.9 billion, or $14.17 a share, vs. a loss of $3.2 billion, or $1.25 a share, last year.
The fourth-quarter results drastically fell short of estimates. Analysts surveyed by Thomson Reuters, on average, forecast a loss estimate of 37 cents a share on revenue of $24.82 billion.
AIG said it reported a full-year 2008 loss of $99.3 billion, or $37.84 a share, as it felt the brunt of continued "severe" credit market deterioration and charges related to its restructuring.
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