By Francesco Guerrera and Jennifer Hughes
American International Group (NYSE:AIG) is urging regulators to change controversial accounting rules on asset valuations to stem the tide of writedowns that have wreaked havoc on Wall Street. The US insurer, which this month recorded a record quarterly loss after an $11bn mortgage-related writedown, is the first company publicly to air a proposal to move away from "fair value" accounting. … Martin Sullivan, AIG's chief executive, told the Financial Times that "mark-to-market" rules forced companies to recognise losses even when they had no intention of selling assets at the current prices. He said the practice created a vicious circle whereby companies recorded huge losses, lost investors' confidence and were then forced to raise funds at unfavourable prices. "This is not a criticism of fair value accounting. I just think it has had unintended consequences in these uncharted waters," he said.
Sabaziotatos says:
For context, see AIG's press release from 2/28/2008, in which AIG reports that $11B of “market valuation losses” on their credit default swap portfolio are “unrealized” and will reverse over the remaining life of the portfolio:
- “AIG continues to believe that the unrealized market valuation losses on this super senior credit default swap portfolio are not indicative of the losses AIGFP may realize over time. Under the terms of these credit derivatives, losses to AIG would result from the credit impairment of any bonds AIG would acquire in satisfying its swap obligations. Based upon its most current analyses, AIG believes that any credit impairment losses realized over time by AIGFP will not be material to AIG’s consolidated financial condition, although it is possible that realized losses could be material to AIG’s consolidated results of operations for an individual reporting period. Except to the extent of any such realized credit impairment losses, AIG expects AIGFP’s unrealized market valuation losses to reverse over the remaining life of the super senior credit default swap portfolio.”
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