American International Group, the insurer that almost failed in the 2008 crisis, could now withstand a severe downturn, its chief executive said after a market sell-off that presents a variety of challenges for the company.
In second-quarter results published on Thursday, AIG reported net profits of $1.8bn compared with a net loss of $2.7bn in the same period last year.
“Our crisis is over. It’s done,” said Robert Benmosche, chief executive.
Mr Benmosche said the company – which is 74 per cent-owned by the US Treasury – was transformed following the 2008 crisis and had a much better liquidity profile after shedding most of the notorious financial products division, which brought the company to the brink of collapse by bad bets insuring toxic securities.
“If the S&P went to 923 [from 1,200] and at the same time we get a hurricane or natural disaster that far exceeds Katrina, we’ll be on the edge,” he said. “We’ll make it but we’ll be on the edge. We want to be sure not to make a boo boo.”
Shares in AIG fell $1.79, or 6.4 per cent, to $26.40, below the price the Treasury needs to realise at a planned offering later in the year if it is to make a profit on its rescue of the group. The results, which fell short of analysts’ expectations, were published after the market closed and the shares dipped slightly more in after-hours trading.
Mr Benmosche said he was comfortable with the Treasury as a shareholder and did not “have a time frame” for the government to sell its stake. In May, the Treasury sold the first tranche of its AIG shares at $29, which it acquired as a result of a government bail-out.
Treasury officials had previously hoped to sell their stake at more than $30 and the continued weakness in the share price – coupled with the broader market turmoil – is jeopardising an improved price at a sale before the end of the year.
It also casts doubt on a possible initial public offering of International Lease Finance, the group’s aircraft leasing business. “We feel we can monetise it for an appropriate price,” Mr Benmosche said.
But he added that ILFC’s agreed acquisition this week of AeroTurbine, a parts seller, gave it other options. “If we can’t release the planes at a decent price, we have the option of breaking them apart and selling them piece by piece,” he said.
Another area of market exposure – AIG’s portfolio of residential mortgage-backed securities – hurt profits at the group, partly a side-effect of a Federal Reserve auction of similar securities that AIG used to own.
The Fed’s ongoing sale of securities from the so-called Maiden Lane II portfolio, which AIG offered to buy back en masse and was turned down, has depressed prices, reducing the fair market valuation of the securities.
“The feeling is that their auction puts too much supply in the marketplace and causes the prices to tank,” said Mr Benmosche, adding that although AIG had participated in the auction, it had preferred to invest in other RMBS.
Group profits were buoyed in the quarter by a $570m tax benefit and a $1.5bn fair value income gain from AIA, the Asian insurer part-owned by AIG.
Earnings per share in the three months to the end of June were $1.00 compared with a loss per share of $19.57 in the same period last year when earnings were depressed by a $3.3bn non-cash goodwill impairment charge.
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