American International Group Inc. released its long-delayed annual report yesterday and, as expected, reported a 2.7% hit to the company’s net worth along with cautionary notes about the longer-term cost that AIG is confronting as it deals with multiple governmental investigations. Here are the previous posts on the travails of AIG.
In a particularly important disclosure, AIG noted that credit downgrades over the past several weeks have forced it to post an additional $1.16 billion in collateral for certain financial contracts. Although that amount is manageable for the time being, AIG noted that “additional downgrades could result in requirements for substantial additional collateral, which could have a material effect” on how AIG manages its short-term liquidity needs.
As noted in this earlier post, a failure of trust is what caused Enron’s failure, and credit downgrades and customer trepidation over AIG’s financial difficulties can cause the same downward spiral for that company. In its latest annual report, accounting adjustments reduced AIG’s previously reported net income for 2004 by 12% ($1.32 billion) to $9.73 billion, and reduced AIG’s book value by $2.26 billion to $80.61 billion. Overall, the restatement reduced AIG’s net income from 2000 through 2004 by 10% ($3.9 billion).