August 6, 2008 / 9:34 PM / 10 years ago

Insurer AIG posts 2nd-quarter loss on write-downs

NEW YORK (Reuters) - American International Group Inc posted its third consecutive quarterly net loss on Wednesday, hurt again by the write-down of derivatives linked to bad mortgage investments.

A sign on an office building for AIG, American International Group, is pictured in Los Angeles, California May 8, 2008. REUTERS/Fred Prouser

The world’s largest insurer also stumbled on lower insurance earnings and losses in mortgage units.

Its shares, which have more than halved over the past year, fell more than 7 percent in after-market trading.

The company also disclosed that some employees have received Wells notices, indicating the U.S. Securities and Exchange Commission is considering civil action. The Department of Justice is also probing the company.

AIG said its second-quarter net loss was $5.36 billion, a loss of $2.06 a share, compared with net income of $4.28 billion, or $1.64 a share, in the year-earlier quarter.

The company recorded $5.57 billion in second quarter unrealized market valuation losses on credit default swaps, the same area that triggered losses over the past two quarters.

Chief Executive Robert Willumstad, less than eight weeks in the job, said he plans to unveil a plan for the troubled firm by late September, later than the early September date he initially hinted at.

“We understand the challenges ahead of us and are developing a plan to see AIG through these difficult time and rebuild shareholder value,” Willumstad said in AIG’s earnings statement.

Some analysts said the large loss was a surprise, but AIG still held value.

“The losses are a little higher than we would have hoped for,” Bill Fitzpatrick, an equity research analyst with Optique Capital in Milwaukee, Wisconsin, said of the credit swap losses.

But he still expects the insurer to eventually see some of the unrealized losses reverse as market conditions improve.

“The thesis remain the same that these portfolios will ultimately be marked up,” Fitzpatrick added.

GRIM OPERATING RESULTS

AIG said general insurance operating income fell 54 percent to $1.39 billion, reflecting a 28.3 percent drop in investment income.

The division wrote $12.22 billion in net premiums in the quarter, a slight increase over last year.

Income from life insurance and retirement services also slipped, falling 10 percent to $2.6 billion.

AIG, best known for its insurance businesses, also has lending units, an asset management division and aircraft leasing.

Its financial services business reported a $5.88 billion loss for the quarter, but aircraft leasing — long one of the company’s most profitable units, recorded record operating income of $352 million in the quarter.

Consumer finance, a division that offered home mortgages, posted a $22 million operating loss.

Reporting by Lilla Zuill; Editing by Andre Grenon

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