SHARES IN American International Group (AIG) plunged yesterday after the world's largest insurance group by assets said it could offer "no assurance" that its huge credit market losses would come to an end any time soon.
After the market closed on Thursday, AIG reported a net loss of $7.8 billion (€5.04 billion) after it revealed $15 billion in credit-related writedowns and said it would raise $12 billion in fresh capital to bolster its balance sheet. The insurer also said it would move Steve Bensinger, chief financial officer, to another job and begin a search for a replacement.
The news came as fellow US financial giant Citigroup announced a plan to shed up to $500 billion of unwanted assets and slash some $15 billion off its cost base in an effort to kick-start profit growth.
Citi's strategy underlines the company's challenge in bouncing back from the credit crisis.
Vikram Pandit, Citigroup chief executive, told Wall Street analysts that reducing Citi's $2,000 billion-plus balance sheet by more than one-fifth was essential to ensure the company's long-term future.
Citi said it would sell or wind down more than $400 billion of its non-core assets by 2010, with the remainder to be dealt with later.
Mr Pandit maintained that the reductions in Citi's assets and businesses would not threaten Citi's universal banking model, which combines consumer and wholesale banking.
AIG's embattled chief executive Martin Sullivan told analysts yesterday that the insurer harboured "no illusions" about the challenges ahead.
"Many of our businesses, while largely affected by external factors, fell short of our own high expectations," he said.
Mr Sullivan, who is facing growing pressure after two disastrous unprofitable quarters, also defended AIG's decision to raise its dividend by 10 per cent to 22 cents a share even in the face of massive losses. He said the dividend increase reflected the insurer's underlying strength.
Including almost $15 billion in fourth-quarter losses and writedowns, the credit crisis has cost AIG more than $30 billion.
AIG shares fell 9 per cent in early trade to $40.12. The shares are off 44 per cent since late June when the credit crisis took hold.
AIG's first-quarter loss, which compared to a profit of $4.13 billion last year, included a writedown of $9.11 billion on its credit default swap portfolio.
The numbers shocked Wall Street because they came after several investment banks reported smaller first-quarter writedowns and said conditions in the credit markets appeared to be improving. - (Financial Times service)
