Magazine article American Banker

3Q Earnings: Losses Aside, AIG Still Committed to Mortgages

Magazine article American Banker

3Q Earnings: Losses Aside, AIG Still Committed to Mortgages

Article excerpt

While predicting housing market losses will continue through next year, executives at American International Group Inc. said it has no plans to abandon its mortgage-related investments, even though losses in that area played a major role in the company's third-quarter profit decline.

"Despite a period of adjustment and volatility, our exposure is appropriate for a strong world leader in insurance," Robert E. Lewis, AIG's chief risk officer, said during its quarterly earnings call Thursday. The "downward cycle" will continue to affect its results for the "foreseeable future," and AIG will face operating losses next year.

AIG said it expected to report it had accrued $550 million of additional losses from its credit-related businesses through the end of October.

Martin Sullivan, AIG's president and chief executive officer, said the housing market will continue to deteriorate through next year, but AIG's "business model and strict underwriting approach are sound, allowing the company to pursue opportunities" with its lending businesses.

The New York insurer's net income fell 26.8% from a year earlier, to $3.09 billion, or $1.19 a share, in large part because of exposure to the subprime mortgage market. Its $872.3 billion investment portfolio lost $864 million, its credit-swap portfolio lost $352 million, and its mortgage insurance business lost $215 million.

Revenue increased 2% to $29.84 billion. Analysts surveyed by Thomson Financial expected, on average, a profit of $1.62 a share on revenue of $29.91 billion.

AIG took a pretax charge of $352 million, or $229 million after taxes, for an unrealized market-valuation loss related to AIG Financial Product Corp.'s super senior credit default swap portfolio, but the company said it does not expect to have to make payments on the derivatives.

Despite these losses, analysts seemed surprisingly upbeat about the company. …

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