AIG Reports Profits Increase — More Smoke and Mirrors

Editor’s Note: OK if you exclude that small matter of a $182 billion dollar loss, they made a profit. Other than that Mrs. Lincoln, how did you like the play?

It is absurd to allow this kind of reporting. Ever since they started monkeying around with reporting standards in the 1960’s, things like this have been coming at us fast and furious. Won’t somebody besides me and a few others stand up and say the Financial Accounting Standards (FAS) are for truth, reality and accuracy, not for promoting commerce based upon false pretenses. It is this kind of reporting and the fact that it is taken seriously by the media, that leads to total confusion by investors, borrowers, and everyone in between.

By LAVONNE KUYKENDALL and JOAN E. SOLSMAN

American International GroupInc. posted its second consecutive profit in the third quarter, driven largely by asset write-ups, while its core insurance operations continued to struggle with a weak economy and lingering negative perceptions in the marketplace.

Despite beating analyst estimates, AIG shares were down Friday. The stock, which has risen nearly sixfold from an all-time low in March, was up 25% for 2009 through Thursday.

In a news release, AIG Chief Executive Robert H. Benmosche said that AIG’s results “reflect continued stabilization in performance and market trends,” but said the company expects “continued volatility in reported results in the coming quarters, due in part to charges related to ongoing restructuring activities.”

One coming expense will be an approximately $5 billion charge in the fourth quarter as it closes on the special-purpose vehicles connected to its foreign life- insurance businesses AIA and ALICO, to pay off $25 billion of its New York Fed credit line.

The outstanding balance of AIG’s government bailout, including government support of all types, was $120.6 billion at the beginning of September, out of total authorized assistance of $182 billion.

Financial markets have improved significantly in the year since AIG’s bailout and changes in how financial firms can value assets have helped AIG recover from the write-downs and charges that brought it near collapse. But analysts say the company, while healthier, remains weak.

AIG posted a profit of $455 million, or 68 cents a share, compared with a year-earlier loss of $24.47 billion, or $181.02 a share. The latest results included $1.8 billion in capital losses, while the previous year’s results included billions in write-downs from credit-default swaps and $15.06 billion in capital losses.

Excluding capital losses and hedging activities that don’t qualify for hedge-accounting treatment, the profit was $2.85 in the latest quarter. A survey of analysts by Thomson Reuters predicted $1.98.

Operating income at AIG’s general-insurance business before capital gains rose more than sixfold, as net premiums written fell 13%. The portion of premiums paid out on claims and expenses climbed to 105.2% from 104.5%.

Profit at the life-insurance division more than doubled as assets under management rose in an improving market. Premiums, deposits and other considerations dropped 38.6% from last year, to $13.7 billion on lingering negative perceptions of AIG events and lower industry sales generally.

AIG, which has become more patient in selling off units as it attempts to repay federal aid, last month sold investment company Primus Financial Holdings Ltd. for $2.15 billion, its biggest sale globally so far. The company will book a $1.4 billion fourth-quarter loss on the sale.

Write to Lavonne Kuykendall at lavonne.kuykendall@dowjones.com and Joan E. Solsman at joan.solsman@dowjones.com

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