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American International Group confirmed analysts’ worst forecasts, as it posted a net loss for the second quarter of 2008 of $5.36 billion or $2.06 per diluted share compared to net income of $4.28 billion or $1.64 per diluted share for the second quarter of 2007.
$4.019 billion in net realized capital losses were the main factor in producing the loss.
AIG said that “second quarter 2008 adjusted net loss,” which excludes the subprime writedowns, “was $1.32 billion or $0.51 per diluted share, compared to adjusted net income of $4.63 billion or $1.77 per diluted share for the second quarter of 2007.”
The report also noted: “Included in the second quarter 2008 net loss and adjusted net loss was a pre-tax charge of approximately $5.56 billion ($3.62 billion after tax) for a net unrealized market valuation loss related to the AIG Financial Products Corp. (AIGFP) super senior credit default swap portfolio. In addition, the second quarter of 2008 included a pre-tax net loss of $518 million ($337 million after tax) for a credit valuation adjustment on AIGFP’s assets and liabilities in accordance with FAS 157 and FAS 159.”
AIG confirmed that the “continuation of the weak U.S. housing market and disruption in the credit markets, as well as global equity market volatility, had a substantial adverse effect on AIG’s results in the second quarter.”
Altogether AIG’s net loss for the first six months of 2008 was $13.16 billion or $5.11 per diluted share, compared to net income of $8.41 billion or $3.21 per diluted share in the first six months of 2007. Adjusted net loss for the first six months of 2008 was $4.88 billion or $1.90 per diluted share, compared to adjusted net income of $9.02 billion or $3.44 per diluted share in the first six months of 2007.
Newly appointed Chairman and CEO Robert B. Willumstad reiterated that the “second quarter results were adversely affected by the severe conditions in the housing and credit markets and a very difficult investment environment.”
He added that the losses do not, however, “reflect the earnings power and potential of AIG’s businesses and it is clear that we have a lot of work to do to restore AIG’s profitability to where it should be.”
Willumstad stated: “We are conducting a comprehensive review of all AIG’s businesses with the objectives of improving results, reducing AIG’s risk profile and protecting our capital base. We are examining every business, as well as the assumptions underlying how we do business in the markets where we have a presence.
“We are considering all options. Our goals are straightforward – to determine the optimal portfolio of businesses for AIG, sharpen our risk management and capital allocation processes, reduce expenses and continue to strengthen our accounting and reporting infrastructure.
“We understand the challenges ahead of us and we are developing a plan to see AIG through these difficult times and rebuild shareholder value. We will report on our progress in late September.”
A conference call for the investment community will be held Thursday, August 7, 2008 at 8:30 a.m. EDT. The call will be broadcast live on the Internet at: www.aigwebcast.com. A replay will be archived at the same URL through Thursday, August 21, 2008.
Source: American International Group – http://ir.aigcorporate.com