AIG's $9 billion loss helping to stabilise their company?
Without a course in Economics, I wouldn't clearly understand the fluctuations of a business. As Prof Mckinney said on Thursday, it is normal for businesses to go through a cycle of profit and loss. Now, AIG is going through the motions of this cycle with fluctuations in revenue and profits.
According to CNNMoney.com, AIG reported a substantial fourth-quarter loss Friday, largely due to costs associated with selling off large stakes in its insurance businesses to reduce the debt it owes to taxpayers.
The New-York based insurance company said it lost $8.9 billion, or $65.51 per share, during the three month period ended December 31. A year earlier, the company lost $61.7 billion, the largest quarterly loss in history. The fourth quarter loss was due to billions of dollars in reconstructing costs that AIG logged in the last three months of 2009.
In Decemeber, AIG sold two large foreign life insurance companies to the US government in exchange for a $25 billion reduction in the amount that the company has to repay. The company also sold a Hong Kong life insurance company at a loss of $2.8 billion and a further $2.3 billion for its increasing loss reserve.
AIG said the moves stabilized its insurance businesses and will help it pay back its debt to the US government. The insurer received a bailout worth up to $181 billion from the Fed.
"I think it's fair to say that we made substantial progress in refocusing our business on growth and profitability, and we set in place the framework for repaying the U.S taxpayers for their support of our company during our darkest days," said Chief Executive Robert Benmosche.
Although AIG is a very large company, I think that a loss of $9 billion is huge.Why do you think this loss will help to stabilise their company? Do you think this loss with have a significant long run improvement for the company? Will they make a comeback from this loss and with what business strategies?
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They losses logged in this quarter help to set them in a place where they have significantly less debt to pay intrest on, significantly less debt to weigh down other borrowing options, and significantly less debt to slow everday buisness operations. This loss is part of a restructuring program, and comparativly 9 billion dollars isnt that much for AIG. Within the next couple of quarters we'll begin to see AIG begin to turn around a profit in the same manner that other bailed out companies have. A
ReplyDeleteI think the interest on the debt had a lot to do with AIG selling some of its life insurances to the government. Being stable will more benefit AIG in the long run in being productive and make a profit. I think in the next couple of quarters AIG will rebound and their numbers will start to be on the upside of things. (A)
ReplyDeleteI agree with Evan that the losses logged in this quarter are helping AIG set itself in a place with substantially less debt and all the other incurred costs. I think that this will play a key role in the long run improvement for the company as they are cutting down on their overhead so they can reach the break even point once again. I think that AIG will rebound and eventually turn a profit. A
ReplyDeleteI think this loss is actually good for them in alot of ways. Firstly, $9 Billion IS alot of money. But it's not the hundreds of billions devastatingly lost to companies like Crocs. Like you said, AIG is a big company and I think they can afford $9 Billion. Also, by paying off their debts, both to teh public and to others, AIG is gaining trust, showing dependability, and therefore helping themselves in the long run by ensuring future customers. Also, it does benefit them not to be paying both the huge interest rates on their debt, and $25 Billion dollars to the US government.
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I suppose as long as AIG has enough money to cover its fixed costs, it can afford to lose $9 million. Also as a tax payer, I hope that the government is getting interest back on that debt. Because if we were repaid with interest, it would really help the national debt problem.
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I think the moves they made selling companies at a loss, which also lowered stock and the value of their company, were moves that will help stabilize their company. Like evan said, lowering the amount they pay in interest will help them chip away without the debt gaining. This is a long term adjustment that will eventually pay off, but obviously in the short run they are going to have to give up some revenue.
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