AIG loses $2.4 billion on asset sales

NEW YORK (CNNMoney.com) -- AIG said Friday that it lost $2.4 billion in the third quarter on sales of insurance units, proceeds of which it plans to use to pay back the U.S. government.

The loss was widely expected, as AIG continued to make progress in its bailout payback efforts. The New York-based insurer recently completed a sale and an IPO of two large Asian life insurance units, which brought in about $37 billion.

Not including discontinued operations, AIG reported a net loss of $200 million, during the three-month period ended Sept. 30. A year earlier, AIG earned $1.6 billion.

AIG said its core insurance business is performing very well, bringing in $2.1 billion of profit during the quarter.

"We will continue with our aggressive plan to close pending transactions in order to repay the [government] in full," said AIG CEO Robert Benmosche in a prepared statement. "Of utmost importance, however, is the continued stabilization and strengthening of AIG's continuing businesses."

Shares of AIG (AIG, Fortune 500) fell 3% in premarket trading.

The insurer also said it continued to wind down its controversial derivatives portfolio in its Financial Products unit, which plummeted in value when the housing market bottomed and nearly caused the company to collapse. AIG reduced the size of that portfolio by 46% so far this year to $505.8 billion. At the end of 2008, the portfolio was worth $1.6 trillion.

AIG has said it will keep about $300 billion worth of the derivatives in its portfolio.

The announcement came on the heels of yet another restructuring of AIG's bailout that both the insurer and the U.S. government said will help expedite the winding down of the taxpayers' stake in the company.

Taxpayers currently are on the hook for roughly $123 billion.

Using funds gained from various asset sales, including the sale and an IPO of the Asian life insurance units, AIG will pay back the roughly $20 billion remaining of its original credit line that it received from the Federal Reserve from September 2008.

The Fed also holds about $30 billion of AIG's troubled assets and $26 billion in preferred stock in the two Asian life insurance units that were sold. Those assets are showing gains, but the Fed is unlikely to sell them off for years. The stock in the two companies will almost entirely be transferred to the Treasury Department, with AIG paying off any remaining money it owes the Fed with proceeds from future asset sales.

That will increase Treasury's stake in AIG to roughly $70 billion, most of which will be transferred into common stock for a 92% stake in the company -- up from 80% now. Treasury says it will eventually sell its shares of AIG to get its money back.

If AIG's shares rise 10% by the time of the sale, taxpayers could potentially break even on the bailout, though Treasury said it will likely lose about $5 billion on the deal. That's not bad, considering the government had said it would loan the insurer up to $182.5 billion.

"Today, I am very pleased to report that we continue to achieve huge progress in realizing our goals to completely repay taxpayers and emerge as one of the largest, most diversified property and casualty companies in the world," Benmosche said in a recorded message on AIG's website.