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AIG Slashes 5 Years of Profit by $4 Billion

The insurer files its 2004 financial report with the SEC and acknowledges improper accounting.

June 01, 2005|From Associated Press

American International Group Inc., the huge insurance company under investigation by state and federal regulators over accounting issues, filed its long-awaited 2004 annual report with the Securities and Exchange Commission on Tuesday, restating financial results for the last five years.

As part of the restatement, AIG cut its shareholders' equity as of Dec. 31 by $2.3 billion, or 2.7%, to $80.6 billion, less than the $2.7-billion reduction the company had forecast.

Revised calculations by the New York-based company lowered AIG's profit by nearly $4 billion for the last five years. The biggest of those changes came in 2004, with net income cut by $1.3 billion, or 12%, to $9.7 billion from the $11 billion that had been reported Feb. 9.

In its new filing with the SEC, AIG acknowledged accounting improprieties, including "improper or inappropriate transactions."

It also said: "In many cases, these transactions or entries appear to have had the purpose of achieving an accounting result that would enhance measures believed to be important to the financial community and may have involved documentation that did not accurately reflect the true nature of the arrangements."

In some instances, the filing said, the transactions "may also have involved misrepresentations to members of management, regulators and AIG's independent auditors."

Moody's Investors Service confirmed its long-term senior debt ratings on AIG at Aa2 based on the report and revised its outlook to "stable."

AIG shares fell 85 cents to $55.55.

Analysts said investors might have been concerned with AIG's announcement that it was boosting its reserves for asbestos cases by $850 million and would commission "a comprehensive independent actuarial review" of reserves for the company's property and casualty insurance operations.

Paul Newsome, an insurance analyst with A.G. Edwards & Sons Inc. in St. Louis, said that "whenever a company says they're going to do an independent review of reserves, you typically think the reserves need to be increased."

An increase in reserves typically reduces earnings.

Last week, New York regulators filed a civil lawsuit against AIG; the company's former chief executive, Maurice "Hank" Greenberg; and its former chief financial officer, Howard I. Smith.

The lawsuit claims that the defendants orchestrated an accounting scheme that made the insurance company's financial picture appear brighter than it was, misleading both investors and regulators.

There was no immediate comment from Greenberg's legal team on the AIG earnings restatement.

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