AIG may take $9.8 bln subprime hit, analyst says
American International Group's losses estimated to be big, but manageable
By Alistair Barr, MarketWatch
Last Update: 6:58 PM ET Oct 25, 2007
SAN FRANCISCO (MarketWatch) -- American International Group could take a $9.8 billion hit from its exposure to subprime mortgages, Friedman, Billings, Ramsey analyst Bijan Moazami estimated on Thursday.
The write-downs will be big, but manageable for one of the world's largest insurers with $104 billion in shareholders equity and the ability to generate third-quarter earnings of $4.4 billion, the analyst wrote in a note to clients.
Merrill Lynch's (MERMER
News, chart, profile, more
Delayed quote dataAdd to portfolio
Analyst
Create alertInsider
Discuss
Financials
Sponsored by:
MER) surprise $8 billion, subprime-related write-down this week has sparked fresh concerns about the impact of this summer's credit crisis on financial-services companies. See story on Merrill's write-downs.
AIG (AIGAIG
News, chart, profile, more
Delayed quote dataAdd to portfolio
Analyst
Create alertInsider
Discuss
Financials
Sponsored by:
AIG) has the largest subprime exposure of any insurers he covers, Moazami noted. Shares of the company fell 3.2% to $61.79 on Thursday amid speculation it could be hit by big write-downs. Spokesman Chris Winans said the company doesn't comment on market rumors.
"Considering the recent write-downs at Merrill Lynch, we believe it is appropriate to evaluate the potential charges that AIG could be facing in light of the continued meltdown in subprime," the analyst wrote.
Losses from AIG's insurance investment portfolio could amount to $5.9 billion, before tax, Moazami estimated. The company has a residential mortgage backed securities (RMBS) portfolio of roughly $94.6 billion, of which $29 billion is related to subprime and $21 billion is associated with RMBS backed by so-called Alt-A home loans, the analyst said.
American General Finance has been a major player in the mortgage market, providing loans to borrowers and also originating and buying loans. The AIG unit's total lending portfolio is roughly $19.2 billion and it could report losses of about $1.4 billion, Moazami said.
AIG's United Guaranty business sells mortgage insurance and could lose $2.5 billion from exposure to second-lien home loans, the analyst estimated.
AIG Financial Products, the insurer's derivatives business, has roughly $3.6 billion of exposure where a portion of the collateral is subprime RMBS, Moazami said. But the analyst believes this unit will report no losses because 98.6% of the exposure is in the super-senior AAA parts of these securities.
Alistair Barr is a reporter for MarketWatch in San Francisco.
AI
