AIG and the Lunacy of GAAP Reporting

Recently, Tom Gallagher, an analyst from Credit Suisse lowered his earnings-per-share estimate and price target for American International Group (AIG), due to elevated losses from its derivatives business. According to Gallagher, "Virtually all the aforementioned indices have declined this quarter, with non-AAA (rated) being hit the hardest, declining between 3%-25%."

This news bodes poorly for AIG's 3rd quarter GAAP earnings in that they will likely have to take additional mark to market losses on both their investment portfolios, and CDS/mortgage insurance portfolios. Keep in mind though that AIG has tremendous underlying revenue and cash flow to help offset the write-downs but that is not the point of this article.