Last updated: August 2, 2012 11:24 pm

AIG beats forecasts with $2.3bn profit

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AIG reported second-quarter earnings of $2.3bn, sharply higher than previous quarters and beating analysts’ estimates.

Shares in the insurance company, bailed out by the US government during the financial crisis, rose more than 1 per cent in after-hours trading.

In two signs that the company is overcoming its toxic legacy as one of the biggest financial rescues in history, AIG said it had repaid $35.6bn of government aid and would rebrand its SunAmerica and Chartis operations using the group name.

Revenues rose from $16.7bn to $17.1bn. Net income of $2.3bn rose from $1.2bn in the second quarter a year ago and $1.8bn in the first quarter of this year. It was boosted by $1.8bn in tax benefits. Analysts had expected net income of about $1.5bn. AIG made $1.33 per diluted share compared with $1 a year earlier.

“We are proud of what we have accomplished and believe we are close to achieving our goal of returning to America all that it provided to AIG during the crisis, plus a profit,” said Robert Benmosche, chief executive.

The US Treasury retains a 61 per cent stake in AIG as a result of the $182bn bailout in 2008. With the company’s shares trading above $30, the Treasury might yet make a small profit on its emergency investment in AIG, according to official figures that peg the break-even price at $28.73.

AIG has bought back some of the Treasury’s shares itself and now has $11bn in liquidity, which could go towards an additional share buyback.

Chartis, the property insurance operation, recorded $936m in operating income compared with $783m a year earlier. Lower catastrophe losses and higher prices helped that business.

SunAmerica, the life insurance arm, posted $933m in operating profits compared with $723m a year earlier. ILFC, the group’s aircraft leasing arm set for an initial public offering, saw operating income rise from $86m to $88m.

The company said the value of its stake in AIA, the Asian insurer, fell $493m in the quarter, marring AIG’s overall performance, while earnings were flattered by an increase in the value of the Maiden Lane III portfolio, a collection of complex credit instruments related to the bailout held at the Federal Reserve Bank of New York.

AIG will reap a third of the profits of future sales from the portfolio, while the bulk will go to the New York Fed.

AIG added $719m to its litigation reserves in the quarter, it said in a regulatory filing. The insurer faces various lawsuits from shareholders. It is also suing Bank of America over losses incurred on mortgage-backed securities.

Later this year AIG is likely to be designated as a “systemically important financial institution”. This would mean it receives supervision from the Fed and tougher capital requirements.

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