AIG shares tumble after insurer says it lost $7.8B in 1Q

NEW YORK - Shares of American International Group Inc. tumbled Friday morning in the first trading session since the insurer said it lost $7.81 billion during the first quarter and is raising $12.5 billion to shore up its capital base.

AIG shares fell $3.87, or 8.8 percent, to $40.28. Shares have traded between $38.50 and $72.97 during the past year.

On Thursday, after the market closed, AIG said it lost $7.81 billion, or $3.09 per share, during the quarter ended March 31, compared with earnings of $1.58 per share, or $4.13 billion, during the year-ago period.

"Put simply, this was a very bad quarter," Goldman Sachs Group Inc. analyst Thomas Cholnoky wrote in a research note. Cholnoky said the quarter was made even worse by the need to raise new capital and the decline in the company's book value.

The loses were primarily tied to losses on the company's swaps and investment portfolios and not to the actual selling of insurance.

AIG lost $9.11 billion in its credit-default swaps portfolio during the first quarter. The swaps promise to cover losses on $579 billion in bonds or other kinds of debt. Losses in its investment portfolio, which includes debt backed by troubled mortgages, totaled $6.09 billion.

Keefe, Bruyette & Woods Inc. analyst Cliff Gallant, who called AIG's first quarter results "ugly" and "disappointing," slashed his 2008 earnings estimate to $2.50 per share from $4.70 per share. He also reduced his 2009 estimate to $5.80 per share from $6.75 per share.

Because of continued losses, AIG said it will raise $12.5 billion to shore up its capital position. The first $7.5 billion will be raised through the offering of common stock and equity units. Another $5 billion will be raised at a later date through the sale of fixed-income securities.

"Clearly, a capital raise of this size will be dilutive to future earnings, unless the company makes a clear case of how it might leverage it for future growth opportunities," Goldman Sachs's Cholnoky wrote in the note.

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