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Fresh from rigging euro bond market, Citigroup pays up for U.S. fraud
AIG Overstated 5 Years
of Net Income by $3.9 Billion
By Chris Sanders
Reuters
Tuesday, May 31, 2005
http://www.reuters.com/financeQuoteCompanyNewsArticle.jhtml?
duid=mtfh09994_2005-06-01_00-10-17_n31637499_newsml
NEW YORK -- Insurer American International Group Inc., which is
being sued by U.S. regulators over an accounting scandal, said on
Tuesday it had overstated net income for the past five years by $3.9
billion, or 10 percent.
Following an internal review, AIG finally released a thrice-delayed
regulatory filing in which it also cut its net worth through the end
of 2004 by $2.26 billion, or 2.7 percent -- less than an early May
warning of a possible $2.7 billion.
AIG, the world's largest insurer by market value, said the $3.9
billion reduction in net income for the five years through 2004
included an $850 million increase in its asbestos and environmental
reserves for the fourth quarter of 2004.
"There is both good and bad news," said Michael Chren, senior
portfolio manager of National City Investment Management Co., citing
the eventual filing of AIG's 10-K annual report and less-than-
expected reduction in net worth as positives.
"But the big negative from our perspective is the asbestos reserve
review. That will leave a cloud over the shares."
The reserves were adjusted to reflect a new view that potentially
more claims could hit the company as AIG increasingly takes into
account the losses it has experienced.
The company said it will commission an independent actuarial review
of loss reserves, including those for asbestos and environmental
claims, for its main property and casualty insurance operations.
The filing with the U.S. Securities and Exchange Commission came a
week after New York authorities filed a civil lawsuit against AIG,
former chief executive Maurice "Hank" Greenberg, and former chief
financial officer Howard Smith.
The lawsuit said Greenberg and Smith, who were ousted after the
investigation picked up steam in February, committed fraud and
manipulated company books to exaggerate the strength of AIG's core
underwriting business and prop up the stock price.
Greenberg's lawyers, who have said they would dispute the charges,
on Tuesday reiterated that he did not make company accounting
decisions alone and that PriceWaterhouseCoopers not only judged past
accounting as sound, the independent auditor also had found the
previous asbestos reserves adequate.
Furthermore, Tuesday's restatement did not give a sufficient reason
to reverse TWC's judgment, Greenberg's legal team said.
Authorities, including New York Attorney General Eliot Spitzer and
New York's Insurance Department, are still investigating the company
and there is a possibility that criminal charges could be laid. AIG
is cooperating fully with regulators.
AIG shares closed down 85 cents, or 1.51 percent, at $55.55 on the
New York Stock Exchange, after a recent run-up. The stock has lost
as much as $57 billion of market value in recent months.
"People are selling on the good news of the 10-K coming out," said
A.G. Edwards Inc. analyst Paul Newsome.
The insurer's press statement and securities filing on Tuesday
followed several releases by the company laying out numerous
accounting errors dating back over a decade.
Now, however, "there should be no further restatements going
forward," said AIG President and Chief Executive Officer Martin
Sullivan in a conference call with investors.
As for the restatements and related publicity: "We haven't seen much
impact on our foreign general or foreign life businesses," Sullivan
said, although they had seen some "cautious" placing of business at
some of its subsidiaries.
In early May, AIG said a planned restatement of more than four years
of financial reports for items like reinsurance and its use of
derivatives would cut $2.7 billion, or 3.3 percent, from its net
worth.
In its latest filing, which ran to over 400 printed pages, AIG said
its management identified material weaknesses in its internal
control over financial reporting. It expects to file a 10-Q report
for the first quarter of 2005 by the end of June.
AIG also said it is unwinding its relationship with privately held
Dublin enterprise Starr International Co. which owns 12 percent of
AIG's outstanding stock and serves as a deferred compensation plan
for AIG executives.
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