Another day, another horrific financial services blow-up. American International Group (AIG) posted its second consecutive loss yesterday after disclosing more than $15 billion in pretax writedowns, including a $9.11 billion loss on mortgage-backed securities it had insured. AIG, the world’s largest insurer by assets, lost $7.81 billion, or $1.41 per share excluding capital losses, wildly missing consensus EPS of -$0.34. The firm also announced that it intends to raise $12.5 billion in capital.The epic losses prompted Fitch and S&P to lower AIG’s debt ratings. Business Week:
S&P lowered its counterparty credit ratings on AIG and several subsidiaries to ‘AA-/A-1+’ from ‘AA/A-1+’, and on AIG’s indirect subsidiary, International Lease Finance Corp., to ‘A+/A-1’ from ‘AA-/A-1+’.
S&P put the affected ratings and the ‘AA+’ counterparty credit and financial strength ratings of AIG’s core insurance divisions on a negative watch list, suggesting further rate cuts are possible.
Meanwhile, Fitch downgraded AIG’s issuer default rating and senior debt ratings to ‘AA-‘ from ‘AA’, and said all the ratings remain on a negative watch list.
So is the credit crunch really “behind us” as Paulson and other powerbrokers said earlier this week? Only if AIG, Fannie Mae, et al, have finally really thrown in the kitchen sink. And based on their prior behaviour, this doesn’t seem guaranteed.