View Full Version : AIG Making ‘Real Money’ After $1.45 Billion Profit, CEO Says

8th May 2010, 11:40 AM
May 8 (Bloomberg) -- American International Group Inc. Chief Executive Officer Robert Benmosche, who promised to rebuild the bailed-out insurer, told investors for the first time the firm made “real money” after a $1.45 billion profit.

Benmosche cited the first-quarter results as evidence the New York-based firm is stabilizing after housing-market losses forced it into a 2008 government rescue. Investment income surged on gains in private equity and hedge-fund holdings, and writedowns on securities narrowed to $309 million from about $3.7 billion a year earlier, AIG said yesterday.

“When you look at the pluses and minuses, they netted out to a quarter in which we made real money and we made real progress in positioning this company for the future,” Benmosche said in an audio statement on AIG’s website. “We are taking the right steps to ensure that we earn the confidence of the marketplace.”

Benmosche, 65, took charge in August of a company reeling from almost $100 billion in 2008 net losses and a government rescue that swelled to $182.3 billion. He told employees that month that he would rebuild AIG businesses before divesting them to repay taxpayers and then announced in March that he had struck deals to sell two non-U.S. life insurance divisions for about $51 billion.

AIG advanced $1.95, or 5.3 percent, to $38.70 in New York Stock Exchange composite trading yesterday, the second-biggest winner on the Standard & Poor’s 500 Index. The firm has climbed 45 percent since Benmosche started on Aug. 10. Profit excluding some investments was $1.21 a share, beating the average 48-cent estimate of two analysts surveyed by Bloomberg. In the year- earlier period AIG had a net loss of $4.35 billion.

‘AIG is Back’

AIG’s remaining businesses after the sales will include a global property-casualty insurer, two Japan units and a U.S. life insurer and retirement services operation. Those businesses produced $2.2 billion in pretax operating earnings in the first quarter, the company said. Benmosche used variations of the word “stable” at least six times in his audio address and a company statement.

“Over and over again we hear the same thing: AIG is back,” Benmosche said, based on comments he said were made at an industry conference. “We will continue to work hard on our goal to be the preeminent global property insurer.”

Benmosche said AIG expects the sales of AIA Group Ltd. and American Life Insurance Co., the non-U.S. life divisions, to be completed by the end of this year. “Our transactions are on track,” he said.

Prudential Plc

Prudential Plc, the British insurer that agreed to pay about $35.5 billion for AIA, this week delayed a $21 billion rights offering needed for the acquisition as U.K. regulators weighed the combined company’s capital adequacy.

Britain’s Financial Services Authority is concerned that the London-based insurer’s capital could get tied up in different countries, limiting Prudential’s ability to move money in the event of an emergency, said a person with knowledge of the matter. Prudential said it still expects to complete the purchase of AIA, which operates in markets spanning China to Australia, in the third quarter.

“Benmosche isn’t in perfect control of the situation, much as he’d like to be,” said Clark Troy, a senior analyst based in Chapel Hill, North Carolina, for Aite Group, a research firm. “The FSA is definitely a wild card. That doesn’t mean that the deal is killed, I think AIA remains an attractive property.”

LBO, Hedge Funds

AIG’s investment income surged as alternative assets, including private-equity and hedge-fund holdings, generated $384 million compared with a loss of about $1 billion a year earlier.

Property-casualty pretax operating profit rose to $1.02 billion from $102 million a year earlier on the improved investment income. AIG’s U.S. life and retirement services division posted pretax operating earnings of $327 million, compared with a $1.83 billion loss a year earlier as investment income fueled by alternative assets surged by $777 million.

AIG opted for the first time in four quarters against extending the period in which it is committed to supporting plane-leasing and consumer-lending units, citing their renewed access to private funding.

The International Lease Finance Corp. plane unit “demonstrated an impressive ability to fund itself,” Benmosche said. “ The capital markets have provided ILFC with more than $4 billion of liquidity this year.”

AIG, once the world’s largest insurer by assets, needed a bailout in 2008 after losses from soured housing bets sapped the parent company of cash. The rescue includes a $60 billion Federal Reserve credit line, a Treasury Department investment of as much as $69.8 billion and up to $52.5 billion to buy mortgage-linked assets owned or backed by the company.