AIG's Profits Sink After Charges

The company took charges of more than $2 billion.
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American International Group

(AIG) - Get Report

said its fourth-quarter earnings plunged year-over-year after the insurance giant recorded charges of more than $2 billion, including costs to end a number of government investigations.

AIG earned $444 million, or 17 cents a share, in the quarter, down from $1.61 billion and 62 cents a share in the same period a year earlier. As of Dec. 31, consolidated assets totaled $853.4 billion.

The company recorded a fourth-quarter $1.15 billion charge for a series of settlements with the Justice Department, the

Securities and Exchange Commission

, the New York Attorney General's Office and the New York State Department of Insurance. Those agencies had been probing AIG's accounting, financial reporting and insurance brokerage practices.

Fourth-quarter results also included a $1.19 billion charge related to an increase of roughly $1.82 billion in AIG's net reserve for losses and loss expenses.

Additionally, the most recent quarter reflects $390 million of losses arising from Hurricane Wilma and $150 million of losses relating to third-quarter catastrophes, primarily Hurricane Katrina. The 2004 fourth quarter had after-tax net catastrophe losses of $217 million.

Adjusted profits for the latest quarter, excluding capital gains and the effect of an accounting change, were $376 million, or 14 cents a share. According to Thomson First Call, analysts were looking for a profit of 24 cents a share.

"In what was a most challenging year for the company, AIG demonstrated its true resilience by generating net income of $10.48 billion for the full year and $444 million for the fourth quarter, after taking charges to settle legal and regulatory issues, increasing general insurance loss reserves and sustaining record catastrophe losses, all while initiating significant change throughout the organization," AIG President and CEO Martin J. Sullivan said in a statement Thursday.

Shares of AIG were falling $1.24, or 1.8%, to $68 in after-hours trading.

Sullivan also said that the settlement reached with federal and New York authorities "was an important step forward in resolving the legal and regulatory issues facing AIG and will allow us to focus intently on our business going forward."

Additionally, AIG filed restated financials for several years, going back to 2000. The restatement addresses the correction of errors, most of which were identified during the ongoing remediation of previously disclosed material weaknesses in AIG's internal controls.

The restatement also includes adjustments in addition to those previously announced, mostly associated with reconciling balance sheet accounts in the domestic brokerage group.

For 2004, AIG restated its revenue to $97.67 billion from $97.99 billion and its net income to $9.84 billion, or $3.73 a share, from $9.73 billion and $3.69 a share reported previously.

Revenue for 2003 was restated to $79.42 billion from $79.45 billion, and earnings went to $8.11 billion, or $3.07 a share, from $8.01 billion and $3.04 a share originally.

AIG has restated its 2002 top line to $66.17 billion from $66.46 billion and its earnings for that year to $5.73 billion, or $2.17 a share, from $5.87 billion, or $2.22 a share.

For 2001, revenue was lowered to $59.96 billion from $60.17 billion as a result of the restatement, and AIG's profit was dropped to $4.09 billion and $1.54 a share from $4.17 billion and $1.57 a share.

Restated revenue for 2000 was $56.70 billion, down from $56.85 billion previously. Net income for that year was restated to $6.04 billion, or $2.29 a share, from $6.14 billion and $2.33 a share.