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Looking Ahead to AIG Second Quarter Results - Recovery Continues But Profits May Be Down

|Includes: AIA, American International Group Inc (AIG)
Tomorrow, AIG releases its second-quarter results and analysts predict a 99-cent-a-share profit, which would be down from this period last year. Revenue is expected to drop by about a third. Since AIG’s general insurance and domestic life insurance businesses account for about half its revenue, we’ll want to look closely at how those divisions are performing.
Still, overall, the AIG story is positive.Bloomberg reports AIG has reduced the debt it owes on a Federal Reserve credit line by about $3.5 billion over the last three months. One unit, American Life Insurance Co., reported partial results for the second quarter - net income tripled in the six months ended May 31 to $694 million. And AIG is being helped by the stabilization in mortgage assets held in the Maiden Lane entities created in 2008 to remove AIG’s toxic securities.
You can credit a lot of AIG’s recovery to CEO Robert Benmosche, who has finally brought stability and firm leadership. But the big question remains – will AIG be able to pay back taxpayers? AIG is planning to sell Alico to MetLife and put AIA Group up for a public offering. AIG has no choice but to sell its non-core businesses so it can pay down the Fed credit line. But in the long run, that’s only going to make it more difficult to earn revenue and increase profits. 
AIG may now be winding down that divestment strategy.  AIG previously said it was considering spinning off its property-casualty insurance business, and now reportedly it plans to keep it. I think after AIG gets rid of Alico and completes the AIA IPO, it needs to stand firm, and concentrate on growing its business.
In June, the Congressional Oversight Panel predicted the government will likely remain a significant shareholder through 2012 and said U.S. taxpayers "remain at risk for severe losses."  But Fed Chairman Ben Bernanke has told Congress he thinks AIG will repay everything. AIG stock is up about 32% since the beginning of the year and value investors are recommending a buy. If this kind of progress continues, taxpayers could even make some money when the government unloads its 80% ownership.


Disclosure: Long AIG