AIG reports massive Q1 net loss of US$7.8bil

By Joseph Chin
KUALA LUMPUR: The world’s largest insurer - American International Group, Inc. - reported a massive net loss of US$7.81bil or US$3.09 per diluted share, due to fallout from the subprime mortgage crisis in the United States.

In a statement posted on its website, AIG announced Friday a plan to raise about US$12.5bil in capital to strengthen its balance sheet and provide increased financial flexibility.

“The capital is to be raised through a common stock offering and an equity-linked offering for an aggregate of approximately US$7.5bil,” it said.

On the Q1 results, AIG said the continuation of the weak US housing market, the disruption in the credit markets, as well as equity market volatility, had a substantial adverse effect on its results for the first quarter ended March 31, 2008.

“These factors were primarily responsible for AIG incurring a net loss for the first quarter of 2008 of US$7.81bil or US$3.09 per diluted share,” it said.

AIG said the net loss included the effect of economically effective hedging activities that did not qualify for hedge accounting treatment under FAS 133 or for which hedge accounting was not applied, including the related foreign exchange gains and losses.

For Q1 of 2007, AIG reported net income of $4.13bil or US$1.58 per diluted share. But for Q1 this year, adjusted net loss was US$3.56 billion or US$1.41 per diluted share, compared to adjusted net income of US$4.39bil or US$1.68 per diluted share for the first quarter of 2007.

AIG said despite the difficult environment and its resulting effect on AIG's overall financial performance for the first quarter, core insurance businesses continue to perform satisfactorily.

“AIG is confident that, although present economic conditions are difficult, AIG's unmatched competitive advantages, strong brand, and unmatched global franchise position it extremely well for the future,” it said.

Meanwhile, Reuters reported AIG was replacing its chief financial officer, as operating income weakened across much of the company.

"I'm disappointed. It was clearly a difficult quarter for them and the difficulties were fairly widespread, they weren't just in the investment portfolio," said Bill Fitzpatrick, an analyst covering financial stocks at Optique Capital in Racine, Wisconsin, which owns AIG shares.