Following on this progression of damaging public disclosures over the past several months, American International Group Inc. announced yesterday, as this NY Times article reports, that the company has decided to delay for a third time the publication of its annual report. The cause for the delay is that AIG management and nervous PriceWaterhouseCoopers LLP auditors continue to wrangle over the financial implications of accounting errors that now are expected to reduce AIG’s net worth by over $2.5 billion, which is about 3% of the company’s net worth. That’s about a billion more in losses than previously predicted.
As one would expect, there appears to be a fair amount of disagreement over what accounting issues should be acknowledged in the annual report between AIG and its longtime auditor PricewaterhouseCoopers, which is already girding for the inevitable lawsuits from AIG investors over its failure to uncover the improper accounting and the company’s allegedly defective internal controls. Since the Sarbanes-Oxley legislation was passed in 2002, auditors and management are required to sign off on the adequacy of a company’s internal controls, the lack of which at least partly contributed to the accounting scandals that led to the demise of Enron Corp. and WorldCom Inc.
Although the incessantly bad public disclosures are troubling for AIG long term, the market appears to have stabilized for the time being with regard to AIG’s stock price. Although AIG’s stock price has fallen almost 30% since February 14 (it opened at $72 on that date), the price has been meandering around $51 since mid-April. The price was was down $.71 in yesterday’s trading.
Meanwhile, the Lord of Regulation is moving on to another scene in his vast landscape of business corruption as several financial institutions confirmed that they have received letters from the Lord’s office in connection with an investigation into mortgage-lending practices. The Lord’s civil-rights division is in the early stages of an investigation into possible discriminatory practices in determining interest rates and fees charged on mortgage loans, which was prompted by recent public disclosures showing that certain minorities are more likely than are whites to be given high-cost sub-prime loans. Lenders say that the difference in interest rates reflects underwriting factors, such as income and credit records.