AIG 2008 Annual Report Download - page 122

the fair value of AIGFP’s assets and liabilities and by the number, size and profitability of transactions entered into
during that period relative to those entered into during the comparative period.
Financial Services Results
Financial Services results were as follows:
2008 2007 2006 2008 vs. 2007 2007 vs. 2006
Years Ended December 31, Percentage Increase/(Decrease)
(In millions)
Revenues:
Aircraft Leasing .............. $ 5,075 $ 4,694 $4,082 8% 15%
Capital Markets .............. (40,333) (9,979) (186) — —
Consumer Finance ............ 3,849 3,655 3,587 5 2
Other, including intercompany
adjustments ................ 314 321 294 (2) 9
Total ........................ $(31,095) $ (1,309) $7,777 —% —%
Operating income (loss):
Aircraft Leasing .............. $ 1,116 $ 873 $ 578 28% 51%
Capital Markets .............. (40,471) (10,557) (873) — —
Consumer Finance ............ (1,261) 171 668 — (74)
Other, including intercompany
adjustments ................ (205) (2) 10 — —
Total ........................ $(40,821) $ (9,515) $ 383 —% —%
2008 and 2007 Comparison
Financial Services reported operating losses in 2008 and 2007, primarily due to unrealized market valuation
losses related to AIGFP’s super senior credit default swap portfolios of $28.6 billion and $11.5 billion in 2008 and
2007, respectively. AIGFP also recorded operating losses of $9.3 billion in 2008 representing the effect of changes
in credit spreads on the valuation of AIGFP’s assets and liabilities, including $185 million of gains reflected in the
unrealized market valuation loss on the super senior credit default swaps. AGF’s operating income declined in 2008
compared to 2007 primarily due to increases in the provision for finance receivable losses of $674 million resulting
from increases to the allowance for finance receivable losses in response to the higher levels of delinquencies on
AGF’s finance receivable portfolio, higher net charge-offs, and a goodwill impairment charge of $341 million. As of
December 31, 2008, AGF reclassified $1.0 billion of real estate loans to be held for sale due to management’s
change in intent to hold these receivables. Based on negotiations with prospective purchasers, AGF determined that
a write-down of $27 million was necessary to reduce the carrying value of these loans to net realizable value. The
sales of these loans were completed in February 2009. As of December 31, 2008, AGF’s intent to hold for
investment the remainder of the finance receivable portfolio had not changed. AIGCFG also recorded a goodwill
impairment charge of $343 million in 2008. The net loss in the Other reporting unit resulted primarily from the
change in fair value of interest rate swaps on economically hedged exposures.
ILFC generated strong operating income growth in 2008 compared to 2007, driven to a large extent by a larger
aircraft fleet, higher lease rates and lower composite borrowing rates.
2007 and 2006 Comparison
Financial Services reported an operating loss in 2007 compared to operating income in 2006 primarily due to
an unrealized market valuation loss of $11.5 billion on AIGFP’s super senior credit default swap portfolio, an other-
than-temporary impairment charge on AIGFP’s available for sale investment securities of $643 million recorded in
other income, and a decline in operating income for AGF. AGF’s operating income declined in 2007 compared to
2006, due to reduced residential mortgage origination volumes, lower revenues from its mortgage banking activities
116 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries