AIG warns of $4.88bn sub-prime writedown

by Gill Montia

Story link: AIG warns of $4.88bn sub-prime writedown

AIG, the world’s largest insurance company, has issued a warning that it could take a $4.88 billion writedown in relation to its investments in sub-prime mortgages.

The predicted loss relates to valuations of its investments for October and November of last year.

In December the group forecast that writedowns covering the two months would be $1.1 billion and the increase is apparently related to a change in the way AIG has calculated the value of the investments.

The group has conceded that its auditor, PricewaterhouseCoopers, has found a “material weakness” in the way the company values its portfolio that contains sub-prime debt.

The portfolio in question contains collateralised debt obligations (CDOs) covering bonds and other asset-backed securities.

In August of last year, AIG reported that its exposure to the sub-prime crisis was “minimal”.

In November it described its exposure to mortgage debt as “high quality” with “substantial protection”.

Following the announcement yesterday, AIG’s share fell 12% taking the total decline in the value of the group because of its exposure to the US sub-prime mortgage crisis to around one-third.

Fitch is currently reviewing the group’s AA credit rating but anticipates that any downgrade would probably be limited to one notch.