Bloomberg- American International Group Inc., the world’s largest insurer, said second-quarter profit rose 34 percent on higher income from private equity and hedge fund investments. The company saidit’s “very comfortable” with its position as the U.S. subprime mortgage market deteriorates.
Net income increased to $4.28 billion, or $1.64 a share, from $3.19 billion, or $1.21, a year earlier, the New York-based company said in a statement. Profit excluding realized investment gains and losses and changes in the value of derivative instruments was $1.77. That beat the $1.61 average estimate of 16 analysts compiled by Bloomberg.
AIG didn’t write down any of its $32.6 billion in subprime- linked securities after analysts said the worst-case scenario would cost as much as $3.25 billion. The company’s mortgage insurance unit had a $78 million pretax loss, and AIG said its overall financial position was safe as the U.S. housing market continues to decline.
“The subprime issue was overblown,” said Paul Newsome, an analyst at St. Louis-based A.G. Edwards & Sons Inc., who has a “buy” rating on the stock. “Investors will respond well to a basically clean quarter from AIG when it comes to their subprime holdings.”
The shares fell 15 percent over two months as more Americans, particularly those with poor or limited credit, defaulted on their home loans. They recovered about half of that this week, and after the announcement, shares rose as much as 2.7 percent to $68.25 in after-hours trading.
