Shares in American International Group plunged after the world’s largest insurance group by assets said it could offer “no assurance” that its huge credit market losses would come to an end any time soon.
After the market closed on Thursday, AIG reported a net loss of $7.8bn after it revealed $15bn in credit-related writedowns and said it would raise $12bn in fresh capital to bolster its balance sheet. The insurer also said it would move Steve Bensinger, chief financial officer, to another job and begin a search for a new CFO.
In a conference call with analysts, Martin Sullivan, AIG’s embattled chief executive, said the insurer harboured “no illusions” about the challenges ahead. “Many of our businesses, while largely affected by external factors, fell short of our own high expectations,” he said.
Mr Sullivan, who is facing growing pressure after two disastrous unprofitable quarters, also defended AIG’s decision to raise its dividend by 10 per cent to 22 cents a share even in the face of massive losses. He said the dividend increase reflected the insurer’s underlying strength.
Including almost $15bn in fourth-quarter losses and writedowns, the credit crisis has cost AIG more than $30bn.
AIG shares fell 8.5 per cent in afternoon trade to $40.40. The shares are off 44 per cent since late June when the credit crisis took hold.
AIG’s first quarter loss, which compared to a profit of $4.13bn last year, included a writedown of $9.11bn on its credit default swap portfolio. The results also included writedowns of $6.09bn on the value of mortgage-related securities and other structured products on the balance sheet.
The numbers shocked Wall Street because they came after several investment banks reported smaller first-quarter writedowns and said conditions in the credit markets appeared to be improving.
Banks have been able to sell on their leveraged loan commitments and buyers such as BlackRock, the giant asset manager, have emerged to purchase some troubled mortgage portfolios.
Mr Bensinger, the outgoing CFO, said that he saw no signs of improvement in the credit markets.
AIG executives stressed on the call that the group’s underlying insurance businesses were performing well but some analysts did not share that view.
Alain Karaoglan, Banc of America Securities analyst, said general insurance, life insurance, financial services and asset management all performed below his expectations. Mr Karaoglan has a neutral rating on the stock.
Other analysts also criticised AIG. “Put simply, this was a very bad quarter which was made even worse by a 15.6 per cent decline in book value,” Thomas Cholnoky, Goldman Sachs analyst, wrote in a note to clients. Mr Cholnoky, who has a buy rating on AIG, called the dividend increase a “bright, but slightly confusing, light” in otherwise grim results.