NU Online News Service, May 2, 4:30 p.m. EDT–American International Group saw its ratings get downgraded by two major ratings firms after its latest postponing of the 10-K filing, but some analysts pointed to AIG's hedging accounting, which could make up for most of the book-value losses from past accounting abuses.
Moody's Investors Service said it has cut its AIG long-term senior debt ratings to "Aa2″ from "Aa1″ with ratings staying on review for possible further downgrade. Fitch Ratings also cut AIG's long-term issuer rating and unsecured senior debt obligations to "Double-A" from "Double-A-Plus." It also lowered AIG's insurance company ratings to "double-A-plus" from "triple-A."
These ratings actions followed AIG's disclosure that its ongoing internal review of past accounting practices would contribute to lowering AIG book value by some $2.7 billion. AIG said it would be restating its 2000-2003 financials as well as the first three quarters of 2004. The company now expects to file its annual 10-K report for 2004 by the end of May.
AIG's latest disclosure came as the company failed to meet a previously announced self-imposed deadline of April 30, for filing its form10-K with the Securities and Exchange Commission.
J. Paul Newsome, insurance analyst from A.G. Edwards & Sons Inc., told National Underwriter that there was also a major positive accounting adjustment that AIG revealed in its latest statement.
AIG said its accounting for "derivatives under the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 133–Accounting for Derivatives and Hedging Activities" was incorrect. Correcting the accounting would add some $2.4 billion to its book value as of end of 2004, AIG said. Mr. Newsome said that such corrections in hedging accounting are actually not uncommon in corporate finances.
"It certainly is indicating that they have an offsetting factor to book-value losses," said Grace Osborne, analyst from Standard & Poor's. "As it stands right now, accounting adjustment really will net out to a $300 million loss."
AIG's Joseph Norton cautioned, though, that the $2.4 billion addition to book value from hedging accounting is not an absolute number and is subject to volatile changes. AIG also noted in its disclosure that the effect of the $2.4 billion boost on consolidated shareholders' equity "will differ from period to period," meaning the book-value boost could actually be less than or even more than the stated $2.4 billion.
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