AIG 2009 Annual Report Download - page 121

American International Group, Inc., and Subsidiaries
the effect on operating results related to the continued wind-down of AIGFP’s portfolios in 2009 partially offset
the unrealized market valuation gains related to AIGFP’s credit default swap portfolios and the gains related to
the effect of changes in credit spreads on the valuation of AIGFP’s assets and liabilities.
• ILFC pre-tax income increased 24 percent or $269 million in 2009 compared to 2008. Rental revenues increased
$332 million and interest expense decreased $212 million in 2009 compared to 2008. The rental revenues
increase was driven to a large extent by a larger aircraft fleet and the interest expense decrease resulted from
lower composite borrowing rates. These results were partially offset by higher depreciation expense and
provision for overhauls, lower flight equipment marketing revenue, and aircraft impairment charges in 2009 of
$51 million.
• Consumer Finance operations reported a decrease in pre-tax losses in 2009 compared to 2008 primarily due to
goodwill impairment charges recorded in 2008 for AGF and AIGCFG of $341 million and $343 million,
respectively. Partially offsetting this benefit was an increase in AGF’s pre-tax loss in 2009 compared to 2008,
primarily due to lower finance charges and other revenues reflecting losses on the sales of real estate portfolios
as part of AGF’s liquidity management efforts and higher provision for finance receivable losses resulting from
higher levels of delinquencies on AGF’s finance receivable portfolio and higher net charge-offs. This increase in
pre-tax loss was partially offset by AGF’s lower operating expenses and interest expense. AGF’s operating
expenses declined in 2009 compared to 2008 primarily due to the write-down of AGF’s goodwill in 2008, the
decision to cease its wholesale originations in 2008 and the closing of 442 AGF branch offices in 2008 and 2009
combined.
2008 and 2007 Comparison
Financial Services reported increased pre-tax losses in 2008 and 2007 primarily due to the following:
• AIGFP’s unrealized market valuation losses related to its super senior credit default swap portfolios of
$28.6 billion and $11.5 billion in 2008 and 2007, respectively. AIGFP also recorded pre-tax 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 pre-tax 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.
• AIGCFG also recorded a goodwill impairment charge of $343 million in 2008.
• ILFC generated strong pre-tax 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.
• The net loss in the Other reporting unit resulted primarily from the change in fair value of interest rate swaps on
economically hedged exposures.
Capital Markets Results
2009 and 2008 Comparison
AIGFP reported a pre-tax gain in 2009 compared to a very significant pre-tax loss in 2008 primarily due to a market
valuation gain in 2009 compared to a loss in 2008 on its super senior credit default swap portfolio. AIGFP’s results
also reflect the effects of its wind-down activities. The net pre-tax results were also affected by efforts initiated during
113 AIG 2009 Form 10-K