Amid widening government probes into its financial practices, insurance giant American International Group Inc acknowledged on Wednesday it had improperly booked transactions with a unit of Berkshire Hathaway Inc that artificially boosted its reserves.
AIG also said that it had not yet completed an in-house review of its accounting and would have to delay filing its annual report until April 30. New York-based AIG earlier had said it expected to file the report yesterday.
The disclosures came as the Securities and Exchange Commission and New York Attorney General Eliot Spitzer were preparing to question AIG's former chief executive officer, Maurice "Hank" Greenberg, and Berkshire Hathaway's chairman and CEO, billionaire investor Warren Buffett, next month about the controversial reinsurance deal. Buffett is to speak with investigators on April 11, and Greenberg the following day.
Berkshire Hathaway has said that Buffett was not aware of how the transactions were structured "or on any improper use or purpose" of the transactions.
Greenberg, who is 79 and led AIG for nearly 40 years, was forced out as CEO by the board earlier this month and has said he will resign shortly as chairman of the company.
In a detailed four-page statement, AIG also disclosed a number of other accounting problems, including the way it booked deals with Caribbean-based insurance companies.
AIG said, however, that "the maximum aggregate effect" of known errors and changes in accounting would reduce the company's US$82.87 billion in capital by about US$1.7 billion, or 2 percent.
Howard Mills, acting superintendent of New York state's insurance department, which is also participating in the investigation, called AIG's statement "pretty significant" and added: "These are very serious issues, and their own admission that they misled this department, we take very seriously." Mills said that AIG needs to continue "to get their house in order, and we believe they will do so."
The Standard & Poor's ratings agency cut AIG's long-term counterparty credit and senior debt ratings to AA-plus from AAA, and took similar action on the ratings of most of the company's subsidiaries.
"The number and scope of inappropriate financial transactions ... have diminished Standard & Poor's assessment of management and its internal controls, corporate governance and aggressive culture," the agency said in a statement.
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