AIG reports record loss after huge write-down
By LIAM PLEVEN
THE WALL STREET JOURNAL ASIA
March 3, 2008
American International Group Inc.'s slogan, "The strength to be there," has been reinforced by operations in more than 130 countries, diverse businesses and a strong balance sheet.
But AIG no longer looks invincible. A record-setting, $5.3 billion quarterly loss for the insurance giant, caused largely by an $11.1 billion write-down, prompted investors on Friday to dump AIG shares, which fell 6.6%, or $3.29, to $46.86, in composite trading on the New York Stock Exchange. The stock, which had fallen about 4% in regular trading Thursday and 2% after-hours, is now trading near where it was 10 years ago.
Chief Executive Martin Sullivan told investors Friday that Joe Cassano, the head of the unit that saw the write-down, has decided to leave "with our concurrence." Mr. Cassano, who is chief executive of AIG Financial Products Corp., has been with AIG for more than 20 years. Through a spokesman, he declined to be interviewed.
Mr. Cassano will retire as of March 31 and remain a consultant through year-end, and his boss, William Dooley, will act as interim head, Mr. Sullivan said.
Investors have been focused on Mr. Sullivan's stewardship after the company disclosed in early February that AIG's auditor had found "material weakness" in its accounting systems.
As recently as December, AIG had updated investors on potential write-downs on the credit derivatives for October and November, providing figures that put them at $1.05 billion to $1.15 billion. This month, it raised that figure to $4.88 billion, when it revealed the auditor's finding. AIG first began selling these types of derivatives in 1998.
On Friday's call with investors, one analyst, Andrew Kligerman of UBS, harked back to that December meeting with investors, saying to Mr. Sullivan that he had "seemed so confident." Mr. Sullivan noted in response that the figures provided at that point hadn't been audited.
Mr. Sullivan took note of investor concerns during Friday's call, repeating his assessment that the year's results were "clearly unsatisfactory" and citing what he called "extraordinary market conditions." But he also said AIG was "well-positioned to grow shareholder value despite the current turbulent environment."
The poor performance also leaves Mr. Sullivan, who took over as CEO nearly three years ago, vulnerable to criticism by his predecessor, Maurice R. "Hank" Greenberg. The 82-year-old insurance executive left AIG as it came under investigation over its accounting. During his tenure as CEO, investors were often willing to pay a premium for its shares. Starr International, a company headed by Mr. Greenberg, is now AIG's largest shareholder.
On Friday, Lee Wolosky, an attorney for Starr, issued a statement saying the cost of AIG's 2005 restatement -- which stemmed from the probe -- and a $1.6 billion settlement AIG agreed to "was minor compared to the company's current performance and accounting problems." Mr. Greenberg is still fighting civil charges by the New York State Attorney General's Office related to the investigation.
AIG disclosed that write-downs, along with share repurchases, had decreased its estimate of its excess capital to $14.5 billion to $19.5 billion as of year-end, down from $16 billion to $21 billion at the end of the third quarter. In a sign of its depleted capital position, AIG said it won't buy back more shares "for the foreseeable future" -- even though the stock has fallen significantly.
The company again tried to emphasize that it doesn't think the write-downs equate to what it could ultimately lose on a portfolio of credit derivatives that are backed in part by subprime mortgages. What it called a "severe stress" test would result in $900 million in losses, AIG said.
But the company also offered no reassurance that there wouldn't be more write-downs for the first quarter of 2008. Steven Bensinger, the firm's chief financial officer, told analysts that providing a number would be "too difficult."
Write to Liam Pleven at liam.pleven@wsj.com |
