AIG posts $24.5 Bln loss in Q3; receives revamped bailout package - Update1

(RTTNews) - Troubled insurance giant American International Group Inc. (AIG | Quote | Chart | News | PowerRating) on Monday reported a hefty net loss for the third quarter compared to a profit in the same period last year, hurt by the financial dislocation in the global markets as well as catastrophe losses and charges related to ongoing restructuring-related activities. Separately, the company announced a restructuring of the original $85 billion bailout package that provided to it by the federal government to prevent the company from collapsing, but was not sufficient. Under the revised bailout deal, the federal government will reduce the original loan provided to the company to $60 billion and will buy $40 billion of AIG's preferred shares in return for partial ownership.

The revised package is expected to give AIG's chief executive officer Edward Liddy additional time to salvage the company, which was rescued by the U.S. government on September 15 from bankruptcy threat after three quarterly losses that exceeded $18 billion. Efforts to repay the original $85 billion loan stalled as plunging financial markets forced potential buyers to shore up their own balance sheets.

The company's net loss for the third quarter was $24.47 billion, or $9.05 per share, compared to net income of $3.09 billion, or $1.19 per share, in the same period last year.

Results for the latest quarter includes pre-tax net realized capital losses of $18.31 billion arising primarily from other-than-temporary impairment charges on AIG's investment portfolio. The company noted that the Securities Lending program accounted for $11.7 billion of these losses, of which $6.9 billion resulted from AIG's change in intent to hold these securities to recovery as the program winds down.

The other-than-temporary impairment charges also included $3.9 billion resulting from the severe, rapid decline in fair value of securities outside of the Securities Lending program, for which AIG concluded it could not reasonably assert that the impairment period would be temporary.

AIG's adjusted net loss for the quarter was $9.24 billion, or $3.42 per share, compared to adjusted net income of $3.49 billion, or $1.35 per share, in the year-ago quarter. On average, fourteen analysts polled by First Call/Thomson Financial estimated the company to report a loss of $0.90 per share for the quarter. Analysts' estimates typically exclude special items.

Additionally, net loss and adjusted net loss for the quarter include a pre-tax charge of about $7.05 billion for a net unrealized market valuation loss related to the AIG Financial Products Corp. super senior credit default swap portfolio and a pre-tax net loss of $1.09 billion for a credit valuation adjustment on AIG Financial Products Corp.'s assets and liabilities.

Also contributing to the loss in the latest quarter were losses on partnership and mutual fund investments of $1.7 billion before tax, compared to $454 million of income in the previous-year quarter.

General Insurance net premiums earned were $11.73 billion in the third quarter of 2008, up 2.6% from $11.43 billion in the prior-year quarter. Net investment income fell 47.3% to $735 million from $1.39 billion in the year-ago period.

Operating loss for the latest quarter was $2.56 billion compared to operating income of $2.44 billion in the same period last year.

At September 30, 2008, shareholders' equity was $71.18 billion, including the addition of $23 billion of consideration received for preferred stock not yet issued. The company's consolidated assets at September 30, 2008 were $1.022 trillion.

Under the revised bailout package, the federal government will reduce the original $85 billion loan provided to AIG to $60 billion, and buy $40 billion of AIG's preferred shares under the $700 billion bailout package for the U.S. financial sector, known as the Troubled Asset Relief Program, announced by the Treasury last month.

The government will also buy $52.5 billion of mortgage securities owned or backed by the company and will establish two facilities for the purpose. The Federal Reserve will reduce the interest rate for the loan by 5.5 percentage points. The changes in the bailout package follow widespread criticism from some large shareholders of the original package, which would have required AIG to quickly sell assets in a declining market while also paying steep interest rates on its loans from the government.

The revised bailout plan from the government is designed to enhance the company's ability to sell assets for a decent price and the taxpayer's ability to recover the money that has been pumped into the beleaguered insurer. The new package aims to shift to the government many of the risks once absorbed by AIG, potentially exposing the government to billions of dollars in future losses.

Edward Liddy, Chairman and CEO of AIG said, "Today's actions send a strong signal to our policyholders, business partners and counterparties that AIG is on the road to recovery. Our comprehensive plan addresses the liquidity issues that threatened AIG, and gives us the financial flexibility to complete our restructuring process successfully for the benefit of all of our constituencies."

AIG closed Friday's regular trading session at $2.11, up $0.24 on a volume of 73.97 million shares.

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