AIG Shares On Giddy Tear – US-FOREX.US
Shares of American International Group closed Friday trading in New York at more than double their price of a week earlier. Investors had been expecting the insurer that was only saved from collapse last year by 180 billion in federal bailout funds, to report Friday its first profit since the third quarter of 2007. AIG so surpassed expectations that its heavily-shorted stock rose 20% on the day. Net earnings for the three months to June 30 were 1.8 billion, or 2.30 a share, against a net loss of 5.4 billion, or 41.13 a share in the same period a year earlier. Earnings release. After paying dividends on the government’s preferred stock, profit attributable to AIG’s
common shareholders was 311 million. The U.S. government owns 80% of the company. “Our results reflect stabilization in certain of our businesses,” outgoing Chief Executive Edward M. Liddy said in a statement. But other operations, including its main insurance business, “remained challenged, largely driven by weak economic conditions and the lingering effect of the negative AIG events earlier in the year,” he said.
The company’s general insurance operations posted operating income, which excludes net realized capital gains, of 1 billion, down from 1.7 billion a year earlier. Meanwhile, write-downs and investment losses eased. AIG’s Financial Products division reported a 636 million unrealized gain in the market value of its credit default swaps portfolio, against a 5.6 billion loss in the same period a year earlier. In a filing with the Securities and Exchange Commission, AIG said it had sold 8 billion of assets this year, 4.6 billion of which would be available to begin repaying debts, including those to the government.A substantial challenge still awaits incoming Chief Executive, Robert H. Benmosche, former Chairman and Chief Executive of MetLife
, who is due to take over from Liddy on Monday, when Harvey Golub, former American Express
Chief Executive, will also become non-executive Chairman. As the second-quarter’s results showed, AIG’s core insurance business is still being buffeted by recession. And, as the company itself has cautioned, unwinding its 1.3 trillion worth of derivatives will take time, and may be expensive. Selling businesses, such as the two life insurance companies it has on the block, to pay off the government loan may proceed more slowly than hoped if the global economic recovery remains sluggish. Golub and Benmosche also have to step gingerly through the political minefield of executive compensation. AIG says it will earmark 249 million in the second half of this year for staff retention bonuses, bringing the total for the year to 1.1 billion. The company was severely criticized in Congress when it paid 165 million to employees in its swaps unit in March.Given the uncertainties, investors may look at the share price more soberly once their giddiness of this week subsides.