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AIG Posts $1.82 Billion Profit, First Since 2007

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Even these clowns are making money again.

 

Does this mean we will actually get a positive return on all the money they got?

 

Aug. 7 (Bloomberg) -- American International Group Inc., the insurer rescued by the U.S. government, reported its first profit in seven quarters on narrowing investment losses and a rebound in the value of some derivatives. The stock gained 7.8 percent in New York trading.

 

Second-quarter net income of $1.82 billion, or $2.30 a share, compares with a net loss of $5.36 billion, or a split- adjusted $41.13, a year earlier, New York-based AIG said today in a regulatory filing. Operating income, which excludes some investment results, was $2.57 a share, beating the average estimate of five analysts surveyed by Bloomberg by $1.07.

 

The results may ease pressure on Robert Benmosche, AIG’s fifth chief executive officer since 2005. The former MetLife Inc. head, who replaces Edward Liddy next week, has to dismantle AIG to repay loans within a $182.5 billion bailout. The insurer posted more than $100 billion in net losses driven by failed housing market bets in the six quarters ended March 31.

 

“This buys him more time because it shows they’re getting some traction,” said Haag Sherman, who helps oversee $7.3 billion as chief investment officer of Houston-based Salient Partners. “He can use the operating profit to show that they have good assets and they just need more time to divest them in an orderly fashion to get the best prices for shareholders and the U.S. government.”

 

Share Surge

 

AIG climbed $1.76 to $24.29 at 9:38 a.m. New York Stock Exchange composite trading. The insurer’s shares surged 71 percent this week through yesterday on speculation results would improve. AIG in June gave investors one new share for every 20 they turned in, a so-called reverse split the firm said would help keep the stock above $1 and avoid delisting. The stock plunged more than 90 percent in the past 12 months.

 

Shareholders’ equity, a measure of assets minus liabilities, improved 27 percent to about $58 billion from $45.8 billion on March 31. Realized investment losses narrowed to $859 million from about $4 billion a year earlier. Rivals including MetLife, the largest U.S. life insurer, and Aflac Inc., the top seller of supplemental coverage, recorded gains in book value as fixed-income holdings rebounded.

 

AIG Financial Products, the unit that sold credit-default swaps blamed for the insurer’s near collapse, reported a $132 million operating loss in the quarter, narrowing from a $6.2 billion loss a year earlier. The results included $636 million in unrealized valuation gains on its swap portfolio.

 

$2.2 Billion Injection

 

AIG said it has injected $2.2 billion into its U.S. life insurance and retirement services operations to help the units maintain “solid” risk-based capital ratios, a measure of an insurer’s strength. AIG tapped $1.2 billion from a $29.8 billion Treasury facility announced in March to supplement a previous $40 billion capital investment.

 

“While our insurance companies’ operating results remain challenged, largely driven by weak economic conditions and the lingering effect of negative AIG events earlier in the year, performance trends stabilized from the first quarter,” Liddy said today in a statement.

 

The company’s life and retirement division, including U.S. and overseas units, reported a 42 percent decline in operating profit to $1.52 billion on lower assets under management and declining sales of new policies. Sales of investment-linked products had been affected by publicity about the company’s bailout, the insurer said.

 

Property Coverage

 

In the property and casualty insurance division, earnings excluding some investment results fell 40 percent to $1.02 billion. Sales declined about 19 percent as the economy slowed and clients bought coverage from competitors. For every dollar in premiums collected, the company used 98.2 cents to pay claims and expenses, up from 92.2 cents a year earlier.

 

Rates charged for U.S. commercial insurance slipped 4.9 percent in the second quarter, according to the Council of Insurance Agents and Brokers. Prices have fallen in every period since 2004 as insurers compete for business. The insurer’s property-casualty unit was renamed Chartis Inc. and may eventually sell a minority stake to a buyer or in a public offering.

 

American General Finance Corp., the consumer lending business, posted an operating loss of $202 million in the quarter, compared with a $40 million loss a year earlier. The Evansville, Indiana-based lender has been selling receivables to improve liquidity after cutting back on lending. American General said last month it would get as much as $975 million selling mortgage-backed certificates to Credit Suisse.

 

Plane Leasing

 

International Lease Finance Corp., the Los Angeles-based plane-leasing unit, posted a 4.8 percent decline in operating profit to $335 million on depreciation expenses. AIG is trying to sell both American General and ILFC.

 

Under Liddy, appointed by the government in September, AIG started a plan to shed most businesses excluding property- casualty operations. He was forced to adjust the plan to include placing three major divisions into special purpose vehicles and seek relaxed terms on AIG’s government loans as the credit crisis hobbled potential buyers’ ability to make bids.

 

The company has struck deals to raise about $7.4 billion by selling assets including a U.S. auto insurer, an equipment guarantor and a Japanese building. That compares with $42.2 billion the company owed on a Federal Reserve credit line as of last week, in addition to the Treasury investment of more than $40 billion.

 

Japanese Tower

 

AIG said it will hand over stakes in two of its biggest non-U.S. life insurance units in exchange for a $25 billion reduction of its Fed debt. The company said today it may take a pretax charge of about $5 billion in connection with the transactions. AIG’s divestiture of its Japanese building doesn’t qualify as a sale under accounting rules because the insurer is a lessee, the company said, and it will book a $1 billion gain after the insurer’s lease expires in 2011.

 

The insurer will skip the conference call presentation and question-and-answer session that accompanied results in the past, Christina Pretto, an AIG spokeswoman, said this week. Benmosche starts on Aug. 10.

 

Benmosche, 65, was CEO of MetLife Inc., the largest U.S. life insurer, for eight years through 2006 and oversaw the company’s change to a publicly traded business from a policyholder-owned firm. Before joining MetLife, he was an executive vice president at PaineWebber Inc. where he directed the merger with Kidder Peabody, AIG said. Benmosche has been on the board of Credit Suisse Group AG since 2002.

 

European Swaps

 

AIG needed a U.S. rescue in September after handing over more than $18 billion in collateral tied to credit-default swaps sold to banks including Goldman Sachs Group Inc. and Societe Generale SA. The swaps protected against declines on securities backed by U.S. subprime mortgages.

 

AIG’s maximum risk on a separate book of swaps sold to European banks narrowed to $177.5 billion as of June 30, compared with $192.6 billion at the end of March. The insurer said in June that declines in the value of assets tied to the swaps could have a “material adverse effect” on results and that the risk of losses on the derivatives may last “longer than anticipated.”

 

The average weighted length of the swaps protecting residential loans is more than 24 years, while the span tied to corporate loans is about 7 years, the company said.

 

The government’s rescue includes a $60 billion credit line, $52.5 billion to buy mortgage-linked assets owned or insured by the company, and a Treasury investment of as much as $70 billion. AIG agreed to turn over a stake of almost 80 percent as part of the initial bailout, diluting private shareholders.

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