AIG posts huge 4th-quarter profit on tax benefit

Thu Feb 23, 2012 5:34pm EST
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By Ben Berkowitz

(Reuters) - Bailed-out insurer American International Group reported a $19.8 billion profit for the fourth quarter, after an accounting change that allowed the company to record an enormous one-time benefit.

The move, which sent the company's shares up by about 6 percent, essentially means AIG will not pay tax on tens of billions of dollars in income in the coming years, thanks to benefits that stem from its financial crisis-era losses.

AIG said in the third quarter that its results in the fourth quarter would determine whether it could release a so-called valuation allowance against the tax assets.

Having determined it is more likely than not to be consistently profitable in the future, it released most of the allowance, nearly $17.7 billion, in the quarter.

Some of the allowance, related to the company's life insurance business, was not released, a determination that future profits are not as immediately certain there. It may still be released in the future, though, which would again add to the company's bottom line.

The future of the tax assets has been a key question for investors, with some analysts suggesting the value of the assets made up as much as a fifth of AIG's stock price. Fund manager Bruce Berkowitz, AIG's largest non-government shareholder, has said the value of the assets was underestimated by the market.

AIG shares rose to $29.70 in after-market trading from a $27.99 close in regular trading on the New York Stock Exchange. At that after-hours price the stock is now above the U.S. Treasury's breakeven point on its 77 percent stake in the company.

There is no time table for the government to sell the remainder of that stake, the last vestige of its $182 billion bailout of what had been the world's largest insurer.   Continued...