Martin Sullivan, American International Group’s (AIG) CEO, has announced that the insurance giant will raise about $20 billion after two consecutive quarters of losses. AIG, the world’s largest insurer by assets, posted a record loss of $7.81 billion in its 3rd quarter on writedowns on contracts insuring subprime mortgages. Bloomberg:
The capital raising reflects the “desire to position AIG with flexibility to take advantage of opportunities,” including expanding the company’s existing businesses, Sullivan said. Last week the insurer said it expected to raise more than $17 billion.
Sullivan, who has said some of the writedowns will reverse, has the support of the board of directors, Chairman Robert Willumstad told reporters last week after the company’s annual meeting. Investors including former CEO Maurice “Hank” Greenberg have faulted Sullivan, 53, after more than $19 billion of losses on the contracts, known as credit-default swaps.
AIG has units that originate, insure and invest in home loans. The insurer wrote down its investment portfolio in the first quarter by $6.09 billion as borrower defaults forced down the value of mortgage-backed securities.
Returns from private equity and hedge funds declined 84 per cent from a year earlier to $197 million because of gridlock in the credit markets. AIG had $29.4 billion in so-called alternative holdings as of March 31, about 3.5 per cent of its investment portfolio. The assets back AIG insurance policies.
Sullivan repeatedly acknowledged shareholders’ unhappiness at last week’s meeting, saying that he shared their disappointment in the stock price.
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