Bailed-out AIG posts fresh profit

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By Stephen Bernard ASSOCIATED PRESS

NEW YORK | AIG said Friday it was profitable for the second straight quarter as its core insurance operations continue to stabilize after the company's bailout by the federal government last year.

American International Group Inc. also said the amount of its government financial assistance dropped by 4 percent during the third quarter.

Its results got a lift from the increasing value of investments it still holds that soured last year and helped drive it to the brink of collapse.

While new insurance business stabilized compared with the second quarter, it is still sharply below year-ago figures as the economy remains weak and AIG struggles with its image after being bailed out by Washington. A recovery in its core insurance operations is considered vital to AIG repaying the government.

Another bailout recipient, McLean, Va., mortgage giant Freddie Mac, said its losses narrowed to $6.3 billion in the third quarter and it didn't need another federal cash infusion.

Freddie Mac has received about $51 billion since it was seized by federal regulators in September 2008, but said it didn't need more money for the second-straight quarter.

"We continued to see some positive housing market developments, including higher volumes of home sales and modest increases in house prices in certain areas of the country," the company's new chief executive officer, Charles Haldeman, said Friday.

However, he cautioned, high unemployment and rising foreclosures will continue to "impede a full recovery," and the company eventually may need more money from the Treasury Department to stay afloat. The government reported Friday that the unemployment rate reached 10.2 percent, the highest since early 1983.

Freddie Mac's quarterly loss works out to $1.94 per share and includes $1.3 billion in dividends paid to the Treasury. It compares with a loss of $25.3 billion, or $19.44 per share, in the year-ago period.

The results were driven by $7.6 billion in credit losses as the company continued to build its reserves for bad mortgages. About 3.3 percent of Freddie Mac's borrowers are at least three payments behind on their mortgages, more than double the rate last year.

Meanwhile, AIG CEO Robert Benmosche warned that earnings would remain choppy as the company executes its restructuring plan.

"We continue to focus on stabilizing and strengthening our businesses, but expect continued volatility in reported results in the coming quarters, due in part to charges related to ongoing restructuring activities," Mr. Benmosche said.

AIG said it plans to record a $5 billion charge in the fourth quarter as it proceeds with spinning off two of its major life insurance businesses. The insurer is shedding American International Assurance Co., or AIA, and American Life Insurance Co., also known as ALICO, as it looks to repay the government.

Shares of AIG fell $3.80, or about 10 percent, to close at $35.48.

Len Blum, a managing partner at investment bank Westwood Capital, said "there is still tremendous risk."

AIG is still on very shaky footing because of the amount of changes it is undergoing and continued uncertainty about exactly how much it will be able to raise from selling assets, Mr. Blum said.

The market for selling big businesses like the one AIG is attempting remains weak because of the struggling economy, he said.

AIG shares have been extremely volatile since the company was bailed out last year. Shares hit a low of $6.60 in March, rose as high as $55.90 in late August, helped in part by a reverse stock split, and then slipped again.

"It's a casino gamble," Mr. Blum said of the stock.