American International Group Inc. says problems with accounting and regulatory investigations are starting to affect its operations.[@@]
The problems forced AIG, New York, to put off filing its official Form 10-K annual report with the U.S. Securities and Exchange Commission for weeks, and the company says regulatory scrutiny is doing more than slow the filing of SEC reports.
One challenge has been a decision by the major rating agencies to take away AIG's cherished AAA credit ratings.
As a result of cuts in AIG's long-term senior debt ratings, "AIG has been required to post approximately $1.16 billion of collateral with counterparties to municipal guaranteed investment contracts and financial derivatives transactions," the company says in its 10-K.
If Moody's Investors Service, New York, cut AIG's long-term senior debt ratings by 1 notch or Standard & Poor's Ratings Services, New York, cut the company's ratings by 2 notches, counterparties to derivatives transactions and municipal GIC transactions could ask AIG to supply $2.3 billion in additional collateral, AIG says.
"Further," AIG says, "additional downgrades could result in requirements for substantial additional collateral, which could have a material effect on how AIG manages its liquidity."
Moreover, although AIG has taken aggressive steps to deal with weaknesses in the company's internal control over financial reporting, "the process is not yet complete," AIG warns. "Delay in the implementation of remedial actions could affect the accuracy or timing of future filings with the SEC and other regulatory authorities."
AIG now has more than enough cash, but the company "does not expect to be able to access the public capital markets until all of its filings with the SEC are up to date, including any amendments to previously filed reports," AIG says.
Because of all the regulatory problems, securing SEC approval of updated registration statements could take several months, AIG says.
Moody's reacted to the release of the AIG 10-K by reaffirming its Aa2 rating on AIG's long-term senior debt.
AIG may have to continue to increase reserves, and it may have to make more management changes, but Moody's believes AIG will continue to be the leading world insurance business, the rating agency says.
As a result of the current restatement, AIG is reporting $9.7 billion in net income for 2004 on $98 billion in revenue, up from $8 billion in net income on $79 billion in 2003.
