Blown Mortgage

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How does $11 billion roll off your lips? I find it a little sickening to try saying the words “lost $11 billion” and it’s not even my money. AIG reported today that not only did it find a way to lose $5.29 billion bucks this quarter; but it also reported a charge of $11.12 billion for credit derivatives going bad - like really bad.

From the Market Watch story on the massive AIG credit derivative charge down:

 

American International Group reported a $5.29 billion fourth-quarter net loss late Thursday after the insurance giant took a big charge related to the estimated market value of credit derivatives.
AIG shares fell 2.9% to $48.70 during late trading after the results.

The net loss was $5.29 billion, or $2.08 a share, vs. net income of $3.44 billion, or $1.31 a share, a year earlier, the company said. The adjusted net loss for the fourth quarter of 2007 was $3.20 billion, or $1.25 a share.

AIG was expected to make 60 cents a share, according to the average estimate of 17 analysts polled by FactSet. The estimates varied widely though, ranging from a loss of $1.20 a share to a profit of $1.68 a share.

The fourth-quarter result included a pre-tax charge of roughly $11.12 billion from a net unrealized market valuation loss related to the super senior credit default swap portfolio of the company’s AIG Financial Products Corp. derivatives unit.

AIG said these unrealized valuation declines aren’t indicative of the actual losses the unit may realize over time. Any credit losses that do occur in future won’t have a big effect on AIG’s overall financial condition. However, the insurer also noted that credit losses that may be realized by its derivatives unit could have a material effect on operating results in specific future reporting periods.

Indeed, AIG’s fourth-quarter results included realized pre-tax losses of $2.63 billion from its investment portfolio and another $643 million of pre-tax losses related to securities that were held for sale by its derivatives unit.

I’ll be your huckleberry. The net operating loss dwarfs the losses posted by Freddie Mac and are a far cry from the paltry $3 billion in write downs that UBS first took back in August that everyone said were “conservative” and meant to “clean out the system in one fell swoop.” Yeah right. Look for more of this.

I’ll have more later on this weekend once I pick my jaw up off the floor.

photo credit: Darcy Knoll

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