AIG Tops Forecasts, Not Worried About Mortgage Exposure

American International Group late Wednesday reported second-quarter earnings that bested analysts' expectations despite losses in the subprime market, amid strength in its property and casualty and domestic life insurance businesses. AIG wrote down none of its $32.6B in subprime-linked securities after analysts had said the worst-case scenario could cost as much as $3.25B. A.G. Edwards said "The subprime issue was overblown." AIG said it earned $4.28B ($1.64/share), up from $3.19B ($1.21/share) a year ago. Excluding items, earnings were $4.63B ($1.77/share) vs. $4.16B ($1.58/share) last year. Revenue rose 16% to $31.15B from $26.85B. Analysts had expected earnings of $1.62/share and revenue of $30.17B, on average. Results included a $78M loss in its mortgage guaranty unit on the weakening U.S. housing market vs. a $110M profit last year. Nevertheless, the company was not concerned about the situation. The consumer finance business also was impacted by the cooling housing market, posting operating income of $58M, down from $199M last year. "We continue to be very comfortable with our exposure to the U.S. residential mortgage market, both in our operations and our investment activities," CEO Martin Sullivan said. AIG said it would provide more detail about its exposure to subprime loans in its Thursday conference call (see full transcript later today).

Sources: Press release, Bloomberg, MarketWatch, Reuters
Commentary: AIG's Insurance Business: An Odd Sense of Gains and Losses • American International Group: Bigger is Better - Especially When It's Cheap
Stocks/ETFs to watch: AIG. Competitors: AZ, AXA, ALL, TRV, BRK.A. ETFs: IAK, KIE

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