AIG Shares Tank After Firm Posts $5.29 Billion Loss


American International Groupshares fell 7 percent on Friday, a day after the world's largest insurer reported a $5.29 billion quarterly loss.

After Thursday's market close, AIG posted the largest loss in its 89-year history, hurt by an $11.12 billion write-down of credit swaps held by its AIG Financial Products unit because of exposure to bad mortgage bets.

The larger-than-expected write-down -- stemming from the insurer revaluing its credit swaps without the benefit of a spread differential calculation -- led AIG's external auditor to cite the company for "material weakness" in internal controls.

AIG Chief Executive Martin Sullivan said on Friday the company was working to address the auditor's concerns.

"We have already begun the process to remediate the material weakness identified by (PricewaterhouseCoopers)," Sullivan told investors on a conference call.

He said Joe Cassano, who has been head of AIG Financial Products, would retire at the end of March.

AIG Earnings Analysis

Credit protection costs on AIG rose sharply on Friday.

The cost of protecting AIG debt with credit default swaps for five years rose to about $204,000 a year to protect $10 million of debt, up from about $181,000 a day earlier, according to data from Markit Intraday.

Earlier on Friday, Keefe, Bruyette & Woods downgraded AIG shares to "market perform" from "outperform." Late on Thursday, Fitch Ratings said the company's ratings remained on "negative watch," indicating the possibility of downgrades.

AIG shares were down about 6.5 percent on the New York Stock Exchange. The shares fell 4 percent on Thursday.

AIG said after markets closed Thursday that its fourth-quarter loss was $5.29 bllion, or $2.08 a share, compared with a profit of $3.44 billion, or $1.31 a share, in the year-ago quarter.

Over the past 8 quarters, AIG has beat expectations 4 times and missed expectations 4 times. The stock has averaged a loss of 0.7% one day after reporting results, and a gain of 0.7% after one week.