February 23, 20112
AIG just conducted a two-fold master class of i) how to confuse Wall Street of having “superb” earnings, and ii) how to avoid paying any corporate taxes for years to come. Because as part of the company’s just announced massive $19.8 billion profit, a whopping $17.8 billion was nothing short of the oldest tax accounting gimmick in the book – the release of a valuation allowance (i.e., deferred tax liability vs deferred tax asset conversion). In other words, apples to apples, the real Net Income attributable to shareholders was not $19.8 billion but realistically $2 billion, which would compare to last year’s $11.2 billion if only it was not for a $13.5 billion gain on divested business posted in Q4 2011, when the company again was fudging numbers like a drunken sailor. Anyway, we are confident even the algos will figure it out eventually. But the real slap in the face coming from this bailed out company is that as a result of this accounting change,AIG will essentially not pay any taxes for years to come, most likely until its next insolvency.
Reuters explains: “Bailed-out insurer American International Group reported a profit of $19.8 billion for the fourth quarter, after an accounting determination that it is likely to post future profits let it release the value of some tax benefits. The move essentially means AIG will not pay tax on tens of billions of dollars of income in the coming years, thanks to benefits that stem from its financial crisis-era losses.” In other words, the company that is still primarily held by the Treasury, i.e., America’s taxpayers, has just repaid its generous bailout provider by halting all tax payments on future profits, courtesy of some bespectacled tax accountant in some dark room agreeing that AIG can now use its NOL carryforward in perpetuity, as the firm is now “viable.”
And that is how corporate cronysim thrives in what what is without a doubt the world’s most laughable banana republic (after Bavaria Sachs of course).
AIG said in the third quarter that its results in the fourth quarter would determine whether it could release a so-called valuation allowance against the tax assets.
Having determined it is more likely than not to be consistently profitable in the future, it released most of the allowance in the quarter.
Some of the allowance, related to the company’s life insurance business, was not released, a recognition that future profits are not as immediately certain there.
And from the company itself:
Net income reflected a U.S. consolidated income tax group deferred tax asset valuation allowance release of $17.7 billion for the quarter and $16.6 billion for full year 2011. As previously disclosed, AIG established a framework for assessing the recoverability of its deferred tax assets. Based on the application of this framework, AIG concluded that it is more likely than not that a substantial portion of the deferred tax assets of the U.S. consolidated income tax group will be realized, and therefore released the valuation allowance equal to that portion in the fourth quarter 2011.
But at least the stock is up mildly in the after hours. We dare not even ask how many Italian bonds the insurer was long in the past quarter, and avoided to take marks on courtesy of MTM still being dead in the abovementioned banana republic.
This article was posted: Thursday, February 23, 2012 at 4:02 pm