Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

AIG's Evaporating Balance Sheet

By

Subprime losses pile up for insurer, wipe out $15 billion.

PrintPRINT
Wall Street knew the fourth quarter at AIG (AIG) would be bad, but few thought it would be this bad. The travails of the largest property and causality insurer in the United States show just how quickly eroding values of derivatives on derivatives can get out of hand:

  • $5.3 billion loss in the 4Q, the largest in the firm's 90-year history
  • $11.1 billion in writedowns on credit default swaps backing subprime CDOs
  • $2.6 billion in writedowns on its general investment portfolio
  • $6.2 billion in annual income, down 56% from last year

Earlier this month, AIG spooked investors with news its auditors had found a "material weakness" in its accounting systems and that it would take larger than expected losses on subprime derivatives. The company revealed that writedowns for October and November would be close to $5 billion; writedowns in December accelerated to over $6 billion. Minyans wanting a reminder of how writedowns can effect a company's balance sheet should review Professor Depew's insightful -- and hilarious -- primer on credit-related writedowns.

Financial markets haven't exactly stabilized since the beginning of the year, as concerns over solvency at bond insurers Ambac (ABK) and MBIA (MBI), coupled with failing auction rate securities markets, have struck fear in the hearts of investors. It's safe to assume AIG's results for the first two months of 2008 likewise haven't improved much.

The company said that, although writedowns may have a material effect on operating results for a single reporting period, they "will not be material" to the company's financial condition. The evaporation of over $15 billion in asset value evidences how easily derivatives created out of thin air can disappear into that same vacuous space.

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opin= =3D =3D3D ion about the performance of securities and financial markets by = the wr=3D iter=3D3D s whose articles appear on the site. The views expresse= d by the wri=3D ters are=3D3D not necessarily the views of Minyanville Medi= a, Inc. or members=3D of its man=3D3D agement. Nothing contained on the web= site is intended to con=3D stitute a recom=3D3D mendation or advice address= ed to an individual investor =3D or category of inve=3D3D stors to purchase= , sell or hold any security, or to =3D take any action with re=3D3D spect t= o the prospective movement of the securit=3D ies markets or to solicit t=3D= 3D he purchase or sale of any security. Any inv=3D estment decisions must b= e made =3D3D by the reader either individually or in =3D consultation with = his or her invest=3D3D ment professional. Minyanville write=3D rs and staff= may trade or hold position=3D3D s in securities that are discuss=3D ed in = articles appearing on the website. Wr=3D3D iters of articles are requir=3D = ed to disclose whether they have a position in =3D3D any stock or fund disc= us=3D sed in an article, but are not permitted to disclos=3D3D e the size o= r direct=3D ion of the position. Nothing on this website is intende=3D3D d = to solicit bus=3D iness of any kind for a writer's business or fund. Mi= ny=3D3D anville mana=3D gement and staff as well as contributing writers wi= ll not respo=3D3D nd to em=3D ails or other communications requesting inves= tment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE