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AIG must restate earlier results again

Company delaying posting its earnings pending restatement

NEW YORK — American International Group Inc., one of the world's largest insurers, said Wednesday it was delaying its third-quarter earnings report until next week because it must again restate earlier financial results to correct accounting errors.

The insurance behemoth's shares seesawed in trading as investors weighed the prospect of yet another restatement — this time for fiscal years 2002, 2003 and 2004 — against broker recommendations that AIG remained a good investment.

After dropping more than a dollar in early trading, AIG shares closed up 52 cents, or 0.8 percent, at $66.37 on the New York Stock Exchange. Its shares have been recovering from a 52-week low of $49.91 in the spring.

AIG, which is headquartered in New York, restated five years of results in late May, cutting shareholders' equity by $2.26 billion, after New York Attorney General Eliot Spitzer launched an investigation into whether the company was using accounting tricks to boost its stock.

In the latest round, AIG said accounting errors caused it to understate previous consolidated results by $500 million, forcing the restatement of its 2002 to 2004 fiscal years. The company also will restate some financial data for 2000 and 2001 and quarterly financial information for 2004 and the first two quarters of 2005.

AIG said that the problems related in part to "accounting for derivatives and related assets." It added: "AIG continues to believe its hedging activities have been and remain economically effective, but do not qualify for hedge accounting treatment."

"It's a reflection of continued deeper due diligence," AIG spokesman Chris Winans said of the restatements. "We're in the process of remediating our internal controls weaknesses."

Despite the accounting problems, both Lehman Brothers and Goldman Sachs advised investors to buy AIG shares if they fell in price.

Lehman Brothers noted that the latest changes "will result in a favorable restatement" to AIG's book value. It added that "investors may view the announcement with concern, but we recommend purchasing AIG on weakness because the core franchise remains strong and underlying earnings would have beat expectations."

Still, Donald Light, a senior insurance analyst with Celent LLC, a global research and consulting firm based in Boston, said it was "a little bothersome" that AIG must restate earnings again.

"They're still turning over rocks and little creatures are scurrying out from under the rocks," he said. "The question from an investor point of view is, 'When will you be done turning over the rocks?' "

At the same time, Light noted, the amount of the change "given the size of AIG's balance sheet is almost immaterial."

The company also said in its statement that it would delay its third quarter earnings report until next Monday, but did release preliminary estimates that included $1.57 billion in losses from Hurricane Katrina and other natural disasters.

In its estimate, AIG said net income will be $1.7 billion for the July-September period and about $10.1 billion for the first nine months of 2005. Adjusted net income, including substantial losses from hurricanes but excluding capital gains, will be $1.8 billion for the quarter and $8.3 billion for the first three quarters of 2005.

A year ago, AIG reported net income in the third quarter of $2.51 billion, or 95 cents a share. Adjusted net income was $2.54 billion, or 97 cents a share.

The company estimates its losses from claims due to hurricanes Katrina and Rita as well as other storms will be about $1.6 billion, or $1.23 per share. AIG previously estimated its storm losses at about $1.1 billion.

The accounting issues surfaced in the spring, as federal and state regulators began investigating the industry's accounting practices and certain transactions AIG conducted with other insurers.

Those probes led to the ouster of former Chairman and Chief Executive Officer Maurice "Hank" Greenberg and a civil lawsuit by Spitzer in May. The suit against AIG and Greenberg alleged "deception and fraud" in the accounting as a way to boost the company's financial results and stock price.