AIG takes $9.1 billion write down - will raise capital immediately
Posted by Morgan on May 11th, 2008
2008
May 11
AIG the large financial congolmerate reported an $8 billion quarterly loss tied to $9.1 billion in credit-loss related write downs. It picked up a nice downgrade from Fitch for its troubles and also announced it will raise new capital immediately. Even better news for AIG shareholders is the company’s continued exposure to future losses in the CDO market and it’s inability to unwind any of its bets in the near future.
From Market Watch on AIG’s credit-market problems:
The worse-than-expected results were driven by a $9.11 billion write-down on a credit derivatives portfolio and $6.09 billion of net realized losses from AIG’s investment portfolio.AIG’s derivatives unit had to post $9.7 billion of collateral to support those waning credit derivatives positions at the end of April. That’s up by $4.4 billion in two months.AIG remains too exposed to complex mortgage-related securities such as collateralized debt obligations, known as CDOs, and won’t be able to extricate itself any time soon, some investors and analysts said after the results.“We will not see the end of CDO and residential mortgage-backed security write-downs until we see a reversal in home price declines,” said Stewart Johnson, a portfolio manager at Philo Smith & Co., an insurance-focused investment firm.
The new cash raised by the company will be used as a safety-net for any future losses related to its ongoing exposure:
Credit market losses in AIG’s investment portfolio have slashed the insurer’s excess capital to between $2.5 billion and $7.5 billion at the end of March from $14.5 billion to $19.5 billion at the end of last year. That persuaded AIG to raise new capital.“That is an excess capital cushion that is simply too low for comfort for us in this kind of volatile period,” Bensinger said. “I don’t think a company like AIG should be running at a capital position that is too close to the line.”