Last updated: December 7, 2012 10:44 pm

AIG to incur $2bn losses from Sandy

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AIG will incur $2bn in pre-tax losses from superstorm Sandy, the insurance group disclosed on Friday – as the company closed in on a deal to sell its aircraft leasing business for $5bn.

The storm struck the northeast coast of the US in late October, causing more than 100 deaths and widespread property damage, including to AIG’s New York headquarters.

Last month, Robert Benmosche, chief executive, said he did not see the storm as a “significant” financial issue for his company. Shares in AIG, which closed up 2.3 per cent at $34.13 on Friday, fell 2 per cent in after-hours trading after the announcement.

AIG said its after-tax losses, net of reinsurance, should total about $1.3bn, reflected in the fourth quarter earnings. There could be material change from that estimate, AIG said.

Separately, AIG earlier said it was close to selling its aircraft leasing business to a Chinese consortium for about $5bn, potentially the largest ever acquisition in the US by a Chinese acquirer.

The insurance group said on Friday that it was in talks to sell a 90 per cent stake in International Lease Finance Corporation to a group led by New China Trust, New China Life Insurance and P3 Investments, and including China Aviation Industrial Fund and ICBC International.

“AIG has consistently stated that ILFC is a non-core asset,” the group said in a statement confirming a report by Bloomberg. “Any possible transaction involving ILFC would be subject to required regulatory approvals, including those in the US and China, and customary closing conditions.”

AIG had been expected to pursue an initial public offering for ILFC, which it has been trying to offload after the group’s brush with bankruptcy in 2008 as part of attempts to focus on core insurance businesses.

A person familiar with the matter said the price, which is yet to be finalised, should value the group at about $5.5bn. AIG is planning to retain a 10 per cent stake in the business, which leases new and used commercial jets to airlines around the world.

If the deal goes ahead it is likely to be the biggest acquisition of a US company by a Chinese acquirer, surpassing the $2.6bn Dalian Wanda paid earlier this year for AMC Entertainment, the US’s second biggest cinema chain.

After a slew of disposals, ILFC is the last big non-core unit on AIG’s books. It is valued at $7.9bn, indicating the company is likely to take a writedown on the sale.

Mr Benmosche told investors last month that “we are still committed to an IPO of that business once the markets are receptive”. In August, Mr Benmosche had acknowledged that “markets have not been very receptive”.

ILFC has been looking to increase the size of its operations in Asia, opening new offices in Beijing and Singapore this year.

AIG was the biggest company that the US government bailed out during the financial crisis, taking $182bn in loans and guarantees. The Treasury announced in September that – including those investments provided by the Federal Reserve – the government had made a profit on its investment.

The treasury has been cutting back its equity ownership of AIG, which it acquired as a result of the bailout, but remains a substantial shareholder with a 21.5 per cent stake.

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