Moody's may cut AIG ratings after record Q1 loss

NEW YORK, May 9 (Reuters) - Moody's Investors Service on Friday said it may cut ratings of American International Group (AIG.N: Quote, Profile, Research) and its subsidiaries after the insurer suffered a record first-quarter net loss of $7.8 billion on write-downs of assets linked to faltering subprime mortgages.

Standard & Poor's and Fitch Ratings already cut the world's largest insurer's rating by one notch to "AA-minus," the fourth-highest investment grade rating.

Moody's said the rating review was prompted by "persistent volatility in AIG's reported results, which has diminished the firm's financial flexibility to some extent, and by concerns over the capital and liquidity levels of subsidiaries that hold the mortgage related positions."

Moody's said the rating review process, which it expects to conclude soon, may lead to a rating cut for the parent company of one or two notches. Moody's rates AIG "Aa2," the third-highest level.

AIG said two rating agency downgrades will likely increase funding costs for some of its businesses and has required it to post $1.6 billion more in collateral. For details see [ID:nN09565485].

AIG was downgraded just as it announced plans to raise about $12.5 billion in capital to strengthen its balance sheet after suffering realized and unrealized losses on credit default swaps and U.S. residential mortgage-backed securities.

"The planned capital issuance will strengthen AIG's balance sheet and liquidity, but it will also increase the firm's fixed charge burden," Moody's said. (Reporting by Anastasija Johnson; Editing by Dan Grebler)