AIG Reports Loss, Badly Missing Estimates

American International Group reported a quarterly loss of 51 cents a share, falling far short of analysts' estimates, which had projected a profit for the company.

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Sales also badly missed estimates.

It marked the company's third consecutive quarterly net loss, as the firm was hurt again by the write-down of derivatives linked to bad mortgage investments.

The world's largest insurer also stumbled on lower insurance earnings and losses in mortgage units.

The company also disclosed that some employees have received Wells notices, indicating the U.S. Securities and Exchange Commission is considering civil action. The Department of Justice is also probing the company.

Shares of AIG , which closed Wednesday down 2.68 percent at $29.09, were about 10 percent lower in extended electronic trading.

AIG said that, excluding one-time items, it lost 51 cents a share on sales of $19.9 billion in the second quarter.

Last year the insurance giant earned $1.77 a share on a topline of $31.15 billion.

A consensus estimate of analysts who follow the company expected earnings of 63 cents a share and revenue of $31.49 billion.

"Considering the headline numbers the stock reaction is reasonable. All these financial companies that were trafficking in the toxic waste, have to find a way to replace these revenues," said William Smith, CEO of Smith Asset Management. "If you are an investment bank, there are a lot more avenues to take, whereas with insurance companies it will be more difficult."

AIG said its second-quarter net loss including items was $5.36 billion, a loss of $2.06 a share, compared with net income of $4.28 billion, or $1.64 a share, in the year-earlier quarter.

The company recorded $5.57 billion in second quarter unrealized market valuation losses on credit default swaps, the same area that triggered losses over the past two quarters. (Video: David Faber's analysis of AIG's earnings)

Chief Executive Robert Willumstad, less than eight weeks in the job, plans to unveil a plan for the troubled firm by late September, later than the early September date he initially hinted at.

"We understand the challenges ahead of us and are developing a plan to see AIG through these difficult time and rebuild shareholder value," Willumstad said in AIG's earnings statement.

Some analysts said the large loss was a surprise, but AIG still held value.

"They may have taken a writedown in the same vein as Merrill Lynch did. It looks like the new CEO took what I call a kitchen sink quarter," said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management.

Grim Operating Results

AIG said general insurance operating income fell 54 percent to $1.39 billion, reflecting a 28.3 percent drop in investment income.

The division wrote $12.22 billion in net premiums in the quarter, a slight increase over last year.

Income from life insurance and retirement services also slipped, falling 10 percent to $2.6 billion.

AIG, best known for its insurance businesses, also has lending units, an asset management division and aircraft leasing.

Its financial services business reported a $5.88 billion loss for the quarter, but aircraft leasing—long one of the company's most profitable units, recorded record operating income of $352 million in the quarter.

Consumer finance, a division that offered home mortgages, posted a $22 million operating loss.

- Wire services contributed to this report.