AIG (AIG)
The day’s most anticipated report was probably the jobs report, which impressively showed a significant slowing of layoffs. However, competing for the top headline is the news from AIG’s quarterly earnings report. Analysts had been expecting American International Group (AIG) to post their first profit since 2007, which the company managed to do, but AIG went far beyond expectations. And yet despite all this, criticism is still coming from all directions. What are the major concerns still facing AIG, and is there any room for optimism?
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Stock Analysis
As with so many things in life, you can’t just look at the surface of something, but to truly understand it you must dig deeper. AIG’s second quarter earnings looked relatively decent; analysts had been expecting a profit around $1.67 per share, which AIG far surpassed, earning $2.30 per share. The company made $1.82 billion, as opposed to losing $5.4 billion last year (the equivalent of $41.13 per share), and total revenue almost doubled to $29.53 billion.
However, this is all overshadowed by the fact that last year, the company was close to failure primarily due to the large number of credit default swaps its financial division was involved in, and AIG received a huge bailout of over $180 billion in order to stay alive. The company is still just getting started on the pathway to recovery. On Monday, CEO/Chairman Edward Liddy will be stepping down, and the positions of CEO and Chairman are being split. Robert Benmosche, former CEO of Met-Life, will be stepping up as the new CEO (the company’s fifth CEO in five years). Benmosche will have a lot to handle, as the company is continuing to restructure, and although the financial products division is improving, its insurance division is still performing poorly.
Looking away from the earnings report, the company is making headlines for other controversies as well. Just yesterday, a four-year investigation into the former CFO of AIG, Maurice “Hank” Greenberg, finally came to an end. Greenberg was facing accusations of fraud and manipulation of earnings, and although he claims he is innocent, he has finally agreed to settle the case for $15 million. Since Greenberg was removed from office in 2005, the company has restated billions of earnings, and paid millions to settle further claims from the Securities and Exchange Commission. As a side note, Greenberg was driven out by former New York state attorney general Eliot Spitzer, and some believe this may have been what pushed AIG over the edge. Although this case is finally settled, it serves as a further reminder of the financial troubles plaguing this company.
Shares of AIG have jumped over 20% since this morning’s news, as investors have optimistically focused on the good reports from AIG (the news also comes one day after Prudential (PRU: Charts, News, Offers) also reported its first profit in a year). In fact, AIG’s investors have been optimistic all week, actually sending AIG shares up 63% on Wednesday alone! It looks as though despite AIG’s still-difficult situation, investors are hopeful; if the company can turn a profit, perhaps they will be able to bounce back, step-by-step. The company has a long way to go to recover from the $180 billion bailout, but investors are hoping, maybe with CEO Benmosche, the fifth time will be the charm.
