10-QPeriod: Q2 FY2008

AMERICAN INTERNATIONAL GROUP, INC. Quarterly Report for Q2 Ended Jun 30, 2008

Filed August 6, 2008For Securities:AIG

Summary

American International Group, Inc. (AIG) reported a significant net loss for the second quarter and first six months of 2008, largely driven by substantial unrealized market valuation losses on its AIG Financial Products (AIGFP) super senior credit default swap portfolio and substantial other-than-temporary impairment charges on its investment portfolio. These losses, stemming from the ongoing disruption in the U.S. residential mortgage and credit markets, led to a sharp decline in revenues and a substantial increase in operating losses across most segments, particularly Financial Services. Despite these headwinds, AIG managed to raise approximately $20 billion in capital through equity and debt offerings in May 2008, bolstering its financial position. The company also reported progress in settling various regulatory investigations and litigations, though significant legal matters remain ongoing. Management expects continued market challenges to impact results in the near term, while also focusing on strategic initiatives to manage liquidity and capital.

Financial Highlights

18 data points
Beta

Revenue

$19.93B

Net Income

-$5.36B

-26.9% Net Margin

EPS (Diluted)

$-41.13

Cash & Equivalents

$2.23B

Free Cash Flow

$16.13B

Financial Statements
Beta
Revenue$19.93B
SG&A Expenses$6.03B
Interest Expense$1.33B
Net Income-$5.36B
EPS (Basic)$-41.13
EPS (Diluted)$-41.13
Shares Outstanding (Basic)130248.74B
Shares Outstanding (Diluted)130248.74B

Key Highlights

  • 1AIG reported a net loss of $5.36 billion for the three months ended June 30, 2008, compared to a net income of $4.28 billion in the prior year period.
  • 2Unrealized market valuation losses on AIGFP's super senior credit default swap portfolio totaled $5.6 billion for the quarter and $14.7 billion for the six months ended June 30, 2008.
  • 3Other-than-temporary impairment charges on investments amounted to $6.8 billion for the quarter and $12.4 billion for the six months ended June 30, 2008, significantly impacting net investment income and realized capital gains (losses).
  • 4The company raised approximately $20 billion in capital through the sale of common stock and equity units in May 2008.
  • 5General Insurance segment operating income decreased significantly due to higher loss ratios and lower net investment income.
  • 6Life Insurance & Retirement Services segment reported operating losses, primarily driven by reduced net investment income and higher net realized capital losses.
  • 7Financial Services segment incurred substantial operating losses, largely attributable to the AIGFP super senior credit default swap portfolio and a decline in consumer finance operations.
  • 8AIG's total consolidated shareholders' equity decreased to $78.1 billion as of June 30, 2008, from $95.8 billion at December 31, 2007.

Frequently Asked Questions

The primary reason for the significant net loss was the substantial unrealized market valuation losses on AIG Financial Products' (AIGFP) super senior credit default swap portfolio, totaling $5.6 billion for the quarter, and significant other-than-temporary impairment charges of $6.8 billion on investments, primarily related to disruptions in the U.S. residential mortgage and credit markets.

AIG successfully raised approximately $20 billion in capital during the second quarter of 2008 through the issuance of common stock ($7.47 billion) and equity units ($5.88 billion), along with $6.9 billion in junior subordinated debentures. This capital raise was intended to strengthen its financial position amidst challenging market conditions.

The Financial Services segment was most severely impacted, reporting an operating loss of $5.9 billion primarily due to the AIGFP super senior credit default swap portfolio and related credit spread changes. The Life Insurance & Retirement Services segment also reported an operating loss, largely driven by investment impairments and reduced net investment income.

AIG is subject to various ongoing litigation and regulatory investigations, including those related to its AIGFP super senior credit default swap portfolio and certain accounting and disclosure practices. While the company is cooperating with authorities and believes it has adequate reserves for potential liabilities, the outcomes are uncertain and could materially affect future financial results.