Although AIG in reply to clarify this message - "have not yet actual loss," but the industry believes that even if the "non-substantive impact" will be with not a small figure.
February 12, the world's largest insurance provider AIG (American International Group) auditors audit issues, and therefore the debt will be secured by the previously announced loss of 1 billion U.S. dollars, revised to 4.88 billion U.S. dollars. This covers only loss in October 2007, two in November.
Goldman Sachs analyst Thomas Keernuoji (ThomasCholnoky) in the February 13th release of the report, the fourth quarter, AIG and the debt-related assets may be diminished 10 billion U.S. dollars.
AIG loss in the amendment, the German Finance Minister PeerSteinbrück the G7 meeting of finance ministers warned on the market, the Ciji Zhai huge losses from AIG may provide bonds guaranteed by the insurance companies assume.
The insurance industry will become HPLS dimension of the crisis collapsed under more than one domino »
Audit crisis
Since March 2005 from the hands of Greenberg succession since the post of president of AIG, Martin Sullivan, 53-year-old commitment to allow AIG to become more transparent, hopes it from the time of the audit from the scandal out.
But overnight, a new audit issues Sullivan in trouble again. February 11, AIG submitted to the U.S. Securities and Exchange Commission 8 - K in the document pointed out that the external auditor of the existence of internal audit found that its "significant deficiencies."
AIG in December 2007 reassure investors, saying in October, November 2 in the CDS in the loss of only around 1 billion U.S. dollars, the loss "is still within the controllable range." But now, this has turned a loss of nearly four times.
Disclosure of information that day, AIG in the New York Stock Exchange shares were down 12 percent, to 44.74 U.S. dollars per share. This is the October 19, 1987 "Black Monday" stock market crash, the biggest one-day drop.
At the same time, Moody's, Standard & Poor's and Fitch rating agencies will be three rating to AIG's prospects, in addition, Standard & Poor's also said, "If the audit market losses for the troubled company, will also further reduce the company's rating."
May lead to loss of the product is to CDO (mortgage bonds) to provide credit protection of the CDS (CreditDefaultSwaps) contracts, also known as credit default swaps. According to the International Commercial Bank the information provided during the contract period, if not secured credit default products, customers will guarantee the payment of fixed costs to obtain the protection of default risk, relatively, once secured a credit default products, The security side, will pay for the losses caused by default.
AIG currently guaranteed by the CDO product of about 62.4 billion U.S. dollars.
The industry believes that this audit was wrong, because the initial valuation of AIG is in accordance with the standard package of CDO prices, and by tracking Ciji Zhai adjustment CDO securities index value. But when the CDO value of a loss when, AIG's loss is not correspond directly with the CDO, but the hands of the CDS with the corresponding contracts, because AIG is not directly held CDO, but secured a direct product of the swap contract .
The crux of the problem is: how for such products valuation » According to analysts, even in normal circumstances, this highly specialized financial derivatives used the frequency is not high, so their pricing more difficult and increase uncertainty in the market, the trading volume of such products will be Narrow, resulting in pricing more difficult.
Analysts believe that the AIG, the current situation may become more painful, because after AIG had to use the same standards of similar products to be evaluated.
Kyrgyzstan-US credit (GimmeCredit) analyst Kase Lin Li-shan in an analytical report said: "AIG's Greenberg will strive to audit and regulatory issues and in this cut from a big step, but recent internal control 'Major loss' has once again undermined investor confidence in it. "
AIG in response to an interview to clarify our message, said the loss has not yet actually happened, but also in the "implementation of these derivatives contracts facing the loss of AIG will not constitute a material impact", but that Li-shan, "if we consider the AIG-scale enterprises, you can imagine, 'the impact of non-real' should also be a significant figure. "
Business model has been questioned
According to the British "Financial Times" reported that Standard & Poor's analyst Catherine Xifuerte that the incident not only threaten to Sullivan's position, but also from people suspected of AIG's business model, in particular, it deviated from the mainstream of the insurance industry expansion .
But Sullivan is the greatest challenge facing from his predecessor is also a major shareholder of AIG - Maurice Greenberg.
The 82-year-old Greenberg is recognized as a Xiongcaitailue the people, he single-handedly AIG will be trained today's giant, until three years ago, an accounting scandal of the FBI was "invited" to the office. Greenberg after the outgoing CEO, with the exception of AIG companies still hold 12 percent of the voting rights stock, are still a number of insurance products in direct competition with AIG.
A few months ago, Greenberg has hinted will be forced to sell the assets of AIG, but have recently said they had no plans to sell all or most of AIG's stock, "unless the need for liquidity in investment activities."
Three years ago, when the 50-year-old Sullivan to take over AIG, the world's biggest insurance group when, AIG are receiving multiple legal investigations, AIG accounts at the time of confusion and even its auditors have refused to audit its accounts. Sullivan took office in the first 18 months, AIG has also been three major typhoons and the strong impact of the earthquake in South Asia. 2007, a loan-to-crisis and the profits of AIG an enormous impact, their 2007 third-quarter loss of 27 percent.
Sullivan has already begun discussions with the Board on whether to begin strategic transformation, if necessary, or even reduce the size of the company.
More and more investors and analysts that AIG should be developed in the sale of Greenberg era of non-insurance business, such as aircraft leasing, capital market transactions and consumer credit sectors.
JP Morgan Chase credit analyst hollow Ma Nyquist said: "Unless the loss of AIG confirmed down, otherwise the market unrest will continue."
Under more than one domino »
AIG made on the amendment before Yukui, German Finance Minister PeerSteinbrück the G7 meeting of finance ministers warned on the market, with the United States Ciji Zhai losses related to the bonds may reach 400 billion U.S. dollars, so there may be a huge loss, such as bonds from AIG Commitment to the security of insurance companies.
U.S. Mortgage Bankers Association said that currently the United States Wei Yuelv all types of housing loans had reached 7.3 percent, in the 1970s is the highest level. December 2007 loan insurance Wei Yueshuai increased by 37 percent from a year earlier. In response, the University of Pennsylvania accounting professor Edward Kezi also pointed out that there may be more behind the startling loss.
February 13, as American families unable to pay housing loans, the largest U.S. mortgage insurer MGIC fourth quarter of single-quarter loss of 1.47 billion U.S. dollars and is expected there may be further losses 3.5 billion U.S. dollars. The company has hired consultants to help finance.
Despite the substantial losses, MGIC chairman and president of still insist that the insurance industry is experiencing "the strongest I have seen the security business base."
Another large insurer CNA Financial companies also 610 million U.S. dollars of losses. The world's largest reinsurers - Swiss Re insurance group in October in two credit default swap contracts on the loss of 1.07 billion U.S. dollars. Three other major bond insurer Ambac, MBIA and FGIC also huge losses.
AMBest in reply to this message that the insurance industry in the debt crisis of the loss should not be great. As of mid-2007, the insurance industry in the debt of its investment accounted for only a total investment of around 3 percent.
And MGIC has announced to give up to provide loans for the bonds of insurance.
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