Summary
This 8-K/A filing from American International Group (AIG) on December 7, 2007, provides an update on the company's exposures to the U.S. residential mortgage market amidst extreme market volatility. AIG held an investor meeting to discuss its situation more thoroughly before its fourth-quarter earnings announcement. The company acknowledged that fair values of its positions, particularly in consumer finance and mortgage guaranty operations, are subject to frequent and significant changes. AIG stressed that it would not provide interim updates on financial information and that investors should not expect any pre-announcement disclosures of future quarterly results.
Key Highlights
- 1AIG held an investor meeting on December 5, 2007, to provide greater detail on its exposures to the U.S. residential mortgage market.
- 2The company expects continued evolution of market conditions, leading to frequent changes in the fair value of its positions.
- 3AIG will not provide financial updates outside of scheduled quarterly earnings announcements.
- 4The fair value of AIG's super senior credit default swap (CDS) portfolio, managed by AIGFP, is estimated to have declined by an additional $500 million to $600 million in November 2007, bringing the total decline since September 30, 2007, to approximately $1.05 billion to $1.15 billion.
- 5AIG estimates preliminary additional gross unrealized losses on its Residential Mortgage-Backed Securities (RMBS) portfolio of approximately 2.1% for November 2007, potentially amounting to $1.9 billion for the month and $2.6 billion for the first two months of Q4.
- 6RMBS investments represented about 10% of AIG's invested assets as of November 30, 2007.
- 7Two shareholder derivative lawsuits were filed in the Southern District of New York on November 20, 2007, alleging breaches of fiduciary duty and securities law violations in connection with disclosures about the sub-prime market crisis.
Frequently Asked Questions
This filing is an amendment to a previous report and provides updated disclosures regarding AIG's exposure to the U.S. residential mortgage market, specifically detailing its positions in super senior credit default swaps and Residential Mortgage-Backed Securities (RMBS) in light of severe market volatility.
AIG estimates a further decline in the fair value of its super senior credit derivatives portfolio (AIGFP) by $500 million to $600 million in November 2007. The aggregate decline since September 30, 2007, is estimated between $1.05 billion and $1.15 billion. However, AIG continues to believe it's highly unlikely AIGFP will need to make payments on these derivatives.
AIG's preliminary estimate shows additional gross unrealized losses of approximately 2.1% on its RMBS portfolio for November 2007, potentially amounting to $1.9 billion for that month and a total of $2.6 billion for the first two months of the fourth quarter. These figures are preliminary and could change significantly.
AIG stated that due to the volatile market conditions and anticipated fluctuations in asset valuations, it will not provide interim updates on its financial information. Investors should expect financial updates only at the scheduled quarterly earnings announcement dates.