American International Group Inc. said it had its first profitable quarter since 2007 — and warned that it still has plenty of repair work to do.
The troubled insurer said Friday it earned $1.82 billion in the April-June quarter as some of its soured assets regained value. But its core insurance business deteriorated sharply amid the recession. And AIG cautioned that unwinding its $1.3 trillion worth of derivatives will take a long time, and that future results will be volatile as it accounts for its restructuring.
Its big plan to pay back the government loan keeping it alive is to sell some of its businesses. But that plan has been revised “to take into account the deterioration of global market conditions,” and it now plans to “maximize the value of its businesses over a longer time frame,” the company wrote in a filing. AIG didn’t give details, but the message was clear that it’s not going to pull off any quick sales.
Investors appeared to focus on AIG’s profit, which included $311 million, or $2.30 per share, for common shareholders. The government owns about 80 percent of the company because of the bailout. AIG shares jumped $4.61, or 20.5 percent, to close at $27.14.
The company said its profit for the quarter that ended June 30 was driven by the stabilizing value of some of its riskier investments, including in its AIG Financial Products Corp. portfolio, the division responsible for many of the transactions that prompted the government bailout last fall. It also got help from accounting changes. Total revenue rose 48 percent, to $29.53 billion from $19.93 billion a year earlier.
During the same period last year, AIG lost $5.4 billion, or $41.13 per share.
AIG has received a government loan package worth up to $182.5 billion. It said it expects proceeds of about $8 billion from sales of assets so far this year, giving it about $4.6 billion to begin repaying debts, including what it owes the government, according to a Friday filing with the Securities and Exchange Commission. It expects to reduce its debt by another $25 billion by selling two life insurance units.
Len Blum, managing director at Westwood Capital LLC, said investors are paying a “lottery premium” for shares of AIG and fellow bailout recipients Fannie Mae and Freddie Mac — bidding them up in hopes of a big payout if the companies actually pay off the government and begin earning profits for shareholders.
He said there’s a chance that will happen, “but is it 20-something dollars worth? That’s a real wild card. AIG still has a lot of exposure to subprime mortgages. That market is not recovering anytime soon.”
AIG also disclosed in the filing that it intends to pay $249 million in employee retention bonuses through the rest of this year, as part of a total of $1.09 billion to be paid out under 2008 plans aimed at retaining high-performing workers. AIG was sharply criticized earlier this year when the total payout was revealed, although Friday was the first time it offered details on the size of the bonuses by business unit.
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