These Concerns Could Hold Back AIG Earnings

American International Group (AIG 0.39%) will release its quarterly report on Thursday, and investors in the stock have seen it hit multi-year highs recently on general optimism about the company's strategic plan execution. But for those looking for AIG earnings growth, the coming report is likely to be disappointing.

More than any other single company, AIG helped bring the financial system to the brink of collapse in 2008. Since then, the company has done an incredibly successful job of divesting itself of non-core assets, repaying bailout money, and emerging as a leaner, more efficient insurance company. Let's take an early look at what's been happening with AIG over the past quarter and what we're likely to see in its quarterly report.

Stats on AIG

Source: Yahoo! Finance.

Will AIG earnings beat estimates again?
Analysts have stayed optimistic in recent months about the prospects for AIG earnings, raising their June-quarter estimates by $0.02 per share, but more importantly increasing their full-year consensus by almost $0.50 per share. The stock has responded bullishly, with a rise of almost 10% since late April.

AIG came into the quarter on a positive note, with its first-quarter earnings coming in better than many had expected. Although earnings fell from the previous year, one-time gains from asset sales in 2012 obscured real gains in insurance operating income. With similar extraordinary items having added to revenue in last year's June quarter, the same effect could explain why bottom-line earnings look likely to drop even as the company gets healthier.

But AIG has been facing challenges on several fronts recently. The Fed's discussions of gradually reducing its quantitative easing program sent shares down temporarily last month as bond prices fell sharply in anticipation of the Fed's eventual exit from making bond-market purchases, and a brief liquidity event in China also added concerns. In addition, legal wrangling has been a distraction to its business as AIG has been trying unsuccessfully to reopen settlement talks with Bank of America (BAC 0.40%) to try to squeeze a bit more money from the bank than the $8.5 billion proposal currently on the table. B of A argues that the originally negotiated amount is appropriate to settle claims over Countrywide mortgage loans. Combine that lawsuit with the action former AIG CEO Hank Greenberg filed against the U.S. government -- one that AIG chose not to join -- and the company is dealing with some publicity that it might prefer not to be getting.

Moreover, AIG's moves to focus on insurance haven't allowed it to avoid designation from the Financial Stability Oversight Council as a systemically important financial institution. AIG was named along with General Electric's (GE 0.48%) GE Capital division, which GE has similarly tried to shrink and deemphasize, with the FSOC noting AIG's size and interconnectedness within the financial community as factors in its determination.

In the AIG earnings report, look for continuing evidence of the company's transformation back into a core insurance giant. With so much profit-making potential and shares still trading at a discount to book value, AIG has promise for investors even if its earnings do post a year-over-year decline.

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