American International Group Inc (NYSE:AIG)’s hopes of jumping into profitability lies in balance following a $5.6 billion pre-tax charge. The charge to one of America’s best Nasdaq Stocks that was announced on Tuesday was far beyond what several investors were expecting. Additionally, the period of time covered by the charge causes more worries.
A big portion of the charge amounting to $3 billion covers the period from 2011 to 2015. Additionally, $1.3 billion of the total charge is for the years between 2005 and below.
A closer analysis of the charge further reduces hopes of the company’s rebound which is currently under intense pressure from activist investors John Paulson and Carl Icahn.
In recent years, the insurer was viewed to be jumping back to profitability basing on the company’s casualty and property business. Some investors and analysts tuned bullish towards the company after the insurer was taken over by the U.S government in 2008 followed by sale of the company’s assets.
According to Randy Binner, an insurance expert and analyst at FBR Capital Markets & Co, it would be easier to rebound if the reason for taking the charge happened in distant past.
On Wednesday, AIG shares dropped to $60.85 representing a 9% drop following the announcement by one of America’s top Nasdaq Stocks. According to the company’s documents, the charge is largely attributed to excess casualty lines as well as worker’s compensation. AIG in January said it was giving up 80% of its reserve risk on a majority of its exposure to commercial insurance in the U.S market to Berkshire Hathaway Inc. (NYSE:BRK.A) at a cost of $9.8 billion. AIG said at the time that it hoped to announce a material charge without specifying the amount of the charge. Insurance and financial analysts however anticipated a much smaller charge. In a research on Wednesday for example, Credit Suisse admitted that it was expecting a charge of not more than $2 billion.
Reached for a comment, AIG’s spokeswoman was economical on information outside the company’s earning call and previous press release.