American International Group Inc. (NYSE: AIG) may still be out of favor among much of the public for its role in the financial meltdown, but now it is back in a more normalized business scenario, it has paid back the government and taxpayers in full, and CEO Robert Benmosche is deemed a savior and probably the best chief executive in the sector. There is just one problem: the stock is getting crushed after its third-quarter earnings report.
A few serious issues appeared in the report, and after the report, and none of them are things investors like to see. 24/7 Wall St. has broken these out individually.
AIG’s earnings dropped to $0.96 per share from $0.99 a year ago, but the drop was worse on a net basis: $1.42 billion in earnings versus $1.62 billion a year ago. This drop in per-share earnings was kept better at least in part because of stock buybacks.
Underwriting losses were seen in the property and casualty unit, although it did manage to have better financial ratios.
The ALICO unit is responding to requests from the New York’s Manhattan District Attorney’s office and other authorities over operations that were sold to MetLife:
The inquiries relate to whether ALICO, DelAm and their representatives conducted insurance business in New York over an extended period of time without a license, and whether certain representations by ALICO concerning its activities in New York were accurate.
In short, it seems possible that AIG could have retroactive liabilities.
Another ongoing issue is that its aircraft leasing arm, International Lease Finance Corp. (ILFC), is still being considered even after all this time. The decision on a sale, spin-off, initial public offering and the like will be made in the fourth quarter. Chinese buyers did not come through with the financing, and this has been a source of problems for all of 2013.
The boutique firm Drexel Hamilton also reportedly issued a stock rating downgrade, to Hold from Buy.
Another issue is that the stock needed a breather. Shares were up almost 47% so far in 2013, to $51.65 right before the third-quarter earnings report. The stock was even up close to its consensus analyst price target above $53.
Many investors are using the AIG results as a reason to take some seriously overdue profits. Other investors who have a longer term outlook may take this weakness and start evaluating whether they want to get in after the dust settles.
AIG shares were down 6.5% at $49.30, on more than 22 million shares as of 10:30 a.m. EST.
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