AIG Takes $7.8B Housing-Linked Loss

American International Group Inc., New York, has reported a net loss of $7.81 billion in the first quarter, and its United Guaranty mortgage insurance subsidiary took an operating loss of $352 million due to housing and capital market disruptions. Analysts at Fitch Ratings, which downgraded AIG's issuer default and senior debt ratings from AA to AA-minus in response to the earnings results, said they believe AIG was primarily exposed to housing finance-related risks through $61 billion of structured finance collateralized debt obligations backed mainly by subprime U.S. residential mortgage-backed securities in its $469 billion portfolio of notional credit derivatives. AIG said the operating loss in its MI unit reflected "increased losses incurred in both the domestic first- and second-lien businesses" and occurred despite a 14.3% jump (from the level recorded a year earlier) in domestic first-lien net premiums written during the quarter. AIG also announced the commencement of offerings of common stock and equity units totaling $7.5 billion. If the company completes the capital raise successfully, Fitch said it plans to remove AIG's ratings from Rating Watch Negative and affirm them with a negative outlook. Fitch plans to lower AIG's ratings by one notch if the capital raise is not successful.