Posted on 06 Aug 2010
American International Group Inc. (AIG) swung to a $2.7 billion net loss for the second quarter due to charges associated with a unit that is being sold, but the company's insurance businesses generated an operating profit.
The government-controlled company booked a $3.3 billion goodwill impairment charge for a previously announced sale of a large overseas life-insurance unit, which dragged AIG's second-quarter earnings into the red. AIG's net loss per share was $3.96, versus earnings of $2.30 per share in the second quarter a year ago, when AIG posted a $1.8 billion net profit.
The company said its continuing insurance operations, which include a global property and casualty insurance business and a domestic life insurance business, generated operating income of $2.2 billion for the three months ended June 30.
Commenting on the second quarter, AIG President and Chief Executive Officer Robert H. Benmosche said, "AIG's continuing insurance operating results remain solid, while the company continues to execute on its restructuring plans and prepares for separation from the U.S. government. Our overall strategy remains unchanged. We remain focused on monetizing AIA and ALICO as quickly as possible in order to repay taxpayers, at values reflecting the unique strengths of these highly attractive franchises. The sale of ALICO is proceeding as planned and is expected to close in the fourth quarter. Recently, we decided to re-initiate our plans to take AIA public, subject to regulatory approval and as market conditions permit. We were pleased to announce that Mark Tucker was named Executive Chairman and Chief Executive Officer of AIA. His public company experience, track record, relationships, judgment and leadership qualities will help us accomplish our ambitious goals. In combination, these two transactions are expected to allow the company to substantially reduce its obligations to the Federal Reserve Bank of New York (FRBNY) and take significant steps toward a sustainable capital structure. As with previous reductions in the FRBNY available amount, accelerated amortization of the pre-paid commitment fee will be triggered when proceeds are applied to pay down the FRBNY Credit Facility balance and available amount. In addition, in the second quarter, AIG reported a $3.3 billion non-cash goodwill impairment charge related to ALICO. Partially offsetting this charge was a fee of $228 million paid by Prudential plc in connection with the terminated sale of AIA. AIG recorded a bargain purchase gain on the Fuji acquisition as a retrospective adjustment to its results of operations for the first quarter of 2010. Neither of these items are included in adjusted net income attributable to AIG. Finally, as previously announced, we agreed to settle a significant class action lawsuit related to the 2005 restatement of certain prior year financial statements and are pleased to put the matter behind us.
"Importantly, operating earnings at our continuing insurance operations have remained solid and stable, with $2.2 billion of pre-tax operating earnings generated by Chartis, SunAmerica Financial Group, AIG Star and AIG Edison. Our teams continue to work extremely hard to strengthen their franchises through extensive distribution, client, and employee outreach, in the midst of very competitive market conditions. Our focus is on continuing to strengthen our core operations by maintaining or improving their financial strength, improving efficiency and transparency, and better balancing risk and return. In addition, we are excited about the opportunity to take AIA public and are working hard in preparation. Despite the change in our path toward monetization, AIA's business fundamentals, market leadership, financial position, and profitability remain strong.
"UGC reported a profit for the second consecutive quarter, as residential mortgage trends showed signs of improvement, and is focused on differentiating itself through improved risk selection, effective loss mitigation and claims management.
"We were pleased to announce that aviation industry veteran Henri Courpron joined as President and Chief Executive Officer of ILFC. We expect ILFC to continue its market leadership in the aircraft leasing industry under Henri's leadership.
"AIGFP continues to make progress on its wind-down and de-risking activities. At the appropriate time, we plan for AIG to directly assume the management of the investment and debt portfolios, leaving only the derivatives portfolio within Capital Markets.
"We remain focused on further stabilizing and strengthening our businesses while continuing our restructuring activities, closing the pending transactions, and developing plans to address our highly leveraged capital structure. In accordance with our longstanding commitment to repay our obligations to the U.S. government, in recent weeks, we have commenced discussions with the FRBNY, the Department of the Treasury and the trustees of the AIG Credit Facility Trust with respect to a proposed strategy to repay the FRBNY Credit Facility and allow the government to exit its owner relationship with AIG."