AMERICAN INTERNATIONAL Group (AIG) yesterday revealed the depth of its financial plight with a $61.7 billion (€49 billion) quarterly loss – the largest in US corporate history – and pointed to the next trouble spot for the financial sector by reporting large writedowns in commercial real estate.

The fourth-quarter results came as AIG confirmed it would give the US government a large stake in its two largest divisions as part of a $30 billion-plus rescue package that could lead to a break-up of the 90-year-old insurer.

AIG’s huge shortfall,which pushed its total net loss for 2008 to nearly $100 billion, was partly driven by substantial writedowns on its commercial mortgage-backed securities (CMBS).

“AIG’s results . . . were negatively affected by continued severe credit market deterioration, particularly in CMBS,” the company said.

The value of AIG’s $20 billion portfolio of securities backed by commercial property loans fell by nearly a quarter in the three months to December, forcing a $5 billion writedown.

The plummeting value of AIG’s commercial mortgage securities will ring alarm bells at the many US banks and hedge funds with large holdings of commercial real estate loans and CMBS.

Bankers have been warning for some time that commercial real estate would be the next source of losses as the slowing economy forces companies to fall back on mortgage payments.

The rest of AIG’s record loss was driven by yet another shortfall in the securities lending business and in the financial product division.

Edward Liddy, AIG’s chief executive, said that the new rescue package – its third in five months – offered the best chance of keeping some businesses alive and repaying taxpayers. – (Financial Times service)