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February 27, 2009 at 07:00 PM
American International Group Inc. has reported a $62 billion net loss for the fourth quarter of 2008 and also has announced major changes in financing arrangements.
AIG, New York, says its operations were somewhat stronger than net results indicate.
Overall revenue from premiums and other considerations held steady at about $20 billion.
The general insurance operations reported a $2.8 billion loss from insurance and current investment operations, but the life and retirement operations reported a $742 million profit on current life, retirement and investment operations.
Overall fourth-quarter net results include $26 billion in losses resulting directly from economic turmoil, $25 billion in accounting charges related to taxes and intangible assets, $6.7 billion in restructuring expenses, and $6.9 billion in federal credit line interest and amortization.
In addition to announcing earnings, AIG discussed revisions in the package of aid it is getting from the federal government.
Officials at the U.S. Treasury Department and the Federal Reserve Board have announced the following changes in the financing arrangements the government has provided for AIG:
- AIG may use equity stakes in two overseas units — American International Assurance Company and American Life Insurance Company — to pay back up to $26 billion of amounts borrowed from the revolving credit facility provided by the Federal Reserve Bank of New York.
- The Treasury will provide about $30 billion through an equity capital facility.
- Treasury will exchange its existing $40 billion cumulative perpetual preferred shares for “new preferred shares with revised terms that more closely resemble common equity and will improve the quality of AIG’s equity and its financial leverage,” officials say.
- The Federal Reserve Bank of New York will eliminate the 3.5% floor on the rate for a revolving credit facility it has been providing since September. AIG has been paying an interest rate of 3 percentage points over the 3-month London Interbank Offered Rate, with a minimum rate of 3.5%. Now, AIG will still be paying a rate of 3 percentage points over LIBOR, but with no minimum rate.
- AIG could sell a 19.9% stake in its AIG Commercial Insurance unit within a year. Originally, AIG had planned to sell only life units. AIG also will be creating a general insurance holding company, AIU Holdings Inc., that will include its commercial insurance group, foreign general unit and other property-casualty operations. AIU Holdings will have a management team and brand that will be “distinct from AIG,” AIG says.
- The New York Fed could help AIG securitize $5 billion to $10 billion in life insurance cash flows.
AIG discussed the fourth-quarter results and financing changes during a conference call. An audio recording of the conference call will be available here.
AIG Chairman Edward Liddy says in a statement about the AIG’s earnings that the company is still viable.
