AIG Earnings Estimate Increased by Credit Suisse (Update3)
Nov. 2 (Bloomberg) -- American International Group Inc., the insurer bailed out by the U.S., had its third-quarter earnings estimate tripled by Credit Suisse Group AG on gains in investments including derivatives and hedge-fund holdings.
AIG will earn $4.50 a share, compared with a prior estimate of $1.40, Credit Suisse’s Thomas Gallagher said today in a note to clients on the New York-based insurer. The company climbed 21 cents to $33.83 at 1:56 p.m. New York Stock Exchange composite trading, after rising as much as $2.86.
Insurers Lincoln National Corp. and Genworth Financial Inc. benefited from rebounds in fixed-income holdings, including bonds tied to mortgages.
Gallagher said AIG will post a gain of about $2.5 billion at the derivatives unit that brought the company to the brink of collapse last year with bets on home loans. Hedge fund and private equity investments probably earned about $700 million in the quarter, he said.
“We would expect to see a strong headline earnings number for the third quarter given the broad-based asset price recovery,” Gallagher said in the note. He rates the shares “underperform” and has said there may be little value for shareholders after the insurer repays its debts under the $182.3 billion government bailout.
The insurer’s book value per share, a measure of assets minus liabilities, may have increased 73 percent in three months to $38 as of Sept. 30 as previous unrealized investment losses reversed, Gallagher said.
Unrealized losses, which don’t count against earnings, are monitored by ratings firms, regulators and investors as a measure of financial strength.
Corporate Debt
AIG held more than $350 billion in bonds as of June 30, with almost 60 percent in corporate debt and residential mortgage-backed securities. Corporate bonds returned 9.58 percent in the third quarter after earning a 13 percent yield in the second, the best quarterly performance, according to Merrill Lynch & Co. data going back to 1997.
Some U.S. home-loan bonds reached prices almost double their March lows after a rally in the third quarter as debt markets recovered. Typical prices for Alt-A securities rose to 60 cents on the dollar from 35 cents in mid-March, according to Barclays Capital data.
The $1.4 trillion hedge-fund industry is recovering after posting a record loss averaging 19 percent in 2008, according to data compiled by Hedge Fund Research Inc. Funds returned 17 percent in the first nine months and attracted $1.1 billion in new investments, ending a one-year streak of net withdrawals, the Chicago-based firm’s data show.
Profit Rebound
A calm hurricane season so far has assisted property- casualty insurers. The third quarter yielded a single U.S. landfall, Tropical Storm Claudette, which struck Florida in August. By the end of September last year, Hurricane Dolly had hit Texas, Gustav came ashore in Louisiana and Hurricane Ike lashed nine states, killing more than 100 people and helping to push the industry into a $9.9 billion net loss in the period, Verisk Analytics Inc. said.
The insurer posted a $1.82 billion profit in the second quarter, its first since 2007, on narrowing investment losses and a rebound in the value of some derivatives. Before that, AIG had reported more than $100 billion in net losses driven by declines on credit-default swaps and investments.
AIG, which has climbed about 7.6 percent in New York trading this year, is expected to report third-quarter results this month. The company may earn $2.39 a share, according to the average of 3 analysts surveyed by Bloomberg.
Lincoln, the Philadelphia-based insurer that struck deals to sell its asset manager and U.K. unit, reported its first profit in a year last week. Genworth, the Richmond, Virginia- based insurer, posted its first profit in six quarters as investment losses shrank.
To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net
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