AIG posts 2Q loss of $538M on restructuring costs

[August 07, 2010]  NEW YORK (AP) -- The insurance giant AIG on Friday reported a $538 million loss in the second quarter due to charges related to selling assets to repay the federal government bailout it received during the financial meltdown.

AIG's adjusted results excluding the charges beat Wall Street expectations as its insurance business improved. Its CEO also said discussions are under way regarding a government exit from its huge stake in the company. Its shares rose in midday trading.

American International Group Inc. said its net loss attributable to common shareholders amounted to $3.96 per share. It had a profit of $311 million, or $2.30 per share, a year ago.

The net loss attributable to AIG was a larger $2.66 billion. That is much bigger than the $538 million loss attributed to its shareholders, because it includes the portion that the government is shouldering. The government owns 80 percent of AIG.

Removing the charges, AIG earned $1.99 per share, up from $1.71 per share last year. That reflected improved performance in its insurance business, despite heavy claims related to the Gulf of Mexico oil rig explosion and subsequent spill, storms and flooding in the U.S. during the quarter and the Icelandic volcano.

Analysts polled by Thomson Reuters, on average, expected profit of 99 cents per share.

Keefe, Bruyette & Woods analyst Cliff Gallant said the results were confusing because the company is undergoing so many changes. But he saw positive signs in the results, most notably that the insurance operations continue to be profitable.

"There has certainly been enough damage to the reputation that there was a risk that insurance operations would start to fall apart, and there's no sign of that," Gallant said.

The company's overall loss included $3.42 billion in charges related to the sale of its American Life Insurance Co. unit, or Alico, and its Nan Shan Life Insurance Co. Both are in the process of being sold to help pay back some of the $180 billion in federal bailout funds received in late 2008. The Alico sale to MetLife Inc. should close by the end of the year.

The company said in July it will conduct an initial public offering of AIA, its Asian life insurance unit, on the Hong Kong Stock Exchange, after the sale of the company to Britain's Prudential PLC fell through.

AIG also reported $755 million in interest and other charges on its emergency line of credit from the Federal Reserve Bank of New York. That was down from $1.4 billion last year, due mainly to a reduction in the balance of the loan, which stood at $26.5 billion on June 30.

When the sale of Alico and the AIA IPO are completed, President and CEO Bob Benmosche said in a recorded statement, "We believe we will be well within striking distance of completing our repayment of the Fed."

The total amount of outstanding government assistance fell slightly during the second quarter to $132.1 billion, not including the emergency line of the credit. Benmosche said in the recording that, over time, the company expects to fully repay taxpayers.

The value of the two units that hold investment assets pledged to the government rose during the quarter.

KBW's Gallant said the talk about a government exit is ahead of his expectations. There's still a lot of uncertainty about how the government will sell off its holdings, but once it's resolved, the value of the company to investors will rise, he said. "I think that's critical to the stock."

AIG no longer holds a conference call to discuss quarterly results. Benmosche said in the recording that the company's insurance businesses were "solid," posting income of $2.2 billion for the quarter.

When the restructuring is complete, the CEO said, the company will have two main businesses, Chartis, its main general insurance unit, and SunAmerica Financial Group, its U.S. life insurance and retirement unit.

Chartis posted operating income of $955 million. Chartis incurred about $287 million in catastrophe losses during the quarter, with claims related to floods in the southeastern U.S., Hurricane Alex and other storms, the Icelandic volcano and $23 million related to the Deepwater Horizon explosion and oil spill in the Gulf of Mexico.

Net written premiums declined 1.6 percent to $7.8 billion.

SunAmerica posted operating income of $1.1 billion, up from $254 million last year.

Lower delinquency rates on mortgages backed by United Guaranty Corp. helped that unit post income of $225 million, reversing a loss of $488 million last year. Benmosche pointed to this unit's second straight quarterly profit as a sign of the company's turnaround.

AIG shares rose $1.03, or 2.6 percent, to close at $40.93 Friday, after earlier bouncing as high as $42.19. The stock has changed hands between $21.30 and $55.90 in the past 52 weeks.

[Associated Press; By EILEEN AJ CONNELLY]

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