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 NEW YORK (AP) - American International Group Inc. says it will raise $12.5 billion in the coming months as the insurer looks to shore up a capital base that has been rocked by deterioration in the credit markets.
AIG shares tumbled $3.27, or 7.4 percent, to $41.45 in after-hours trading Thursday after the company disclosed it needs fresh cash and reported a first-quarter loss of $7.81 billion.
The capital raising effort will be a two-step process, with the first portion estimated to raise $7.5 billion through an offering of common stock and equity units. The equity units will consist of subordinated debt securities and contracts that require the holders to purchase AIG stock at a future date.
No pricing for the offerings, nor a final date for when the offering will be completed, was disclosed.
Citigroup Inc. and JPMorgan Chase & Co. are managing the offerings.
Once the $7.5 billion offering is completed, AIG will raise an additional $5 billion through an offering of high equity fixed-income securities. AIG, the world's biggest insurer, has yet to disclose a timetable for when it will offer the securities.
All of the new capital is being raised in response to the hard hits AIG has taken from deterioration in the credit markets, which led the insurer to lose billions of dollars for the second straight quarter.
As defaults sharply increased on mortgages beginning in the middle of 2007, investors shied away from purchasing all but the safest debt. Because of the illiquidity in the credit markets the value of risky debt has plummeted, forcing companies like AIG to reduce the value of their investments in products such as credit default swaps and mortgage-backed securities.
"While we anticipated a difficult trading environment, the severity of the unrealized valuation losses and decline in value of our investments were beyond our expectations," Martin Sullivan, AIG's president and chief executive, said in a statement.
Problems in the credit markets have forced other financial services firms, including Citigroup and Merrill Lynch & Co., to raise billions of dollars in new capital as well.
New York-based AIG lost $7.81 billion, or $3.09 per share, during the quarter ended March 31, compared with earnings of $1.58 per share, or $4.13 billion, during the year-ago period. It lost more than $5 billion during the final quarter of 2007.
Analysts surveyed by Thomson Financial, on average, forecast a loss of 76 cents per share in the latest quarter.
AIG lost $9.11 billion in its credit-default swaps portfolio during the first quarter. The swaps promise to cover losses on $579 billion in bonds or other kinds of debt. Losses in its investment portfolio, which includes debt backed by troubled mortgages, totaled $6.09 billion.
AIG says it lost $352 million in its mortgage insurance business, United Guaranty, which makes principal and interest payments when borrowers miss mortgage payments.
Overall, the insurance writing business at AIG was relatively flat compared with the first quarter last year. Net premiums written fell less than 1 percent during the first quarter to $12.08 billion. AIG's net premiums written totaled $12.11 billion during the same quarter last year.
Separately, the board of directors approved a 2 cent per share, or 10 percent, boost to its quarterly cash dividend, to 22 cents. The dividend will be paid Sept. 19 to shareholders of record on Sept. 5.
The company also appointed Steven Bensinger vice chairman of financial services. He previously served as executive vice president and chief financial officer at AIG. He will continue in his current role until a replacement can be found, the company said.
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