Disastrous first half of 2008. $5.6bn loss on credit default swops.

American International Group (AIG) reported a net loss for the second quarter of 2008 of $5.36bn or $2.06 per diluted share compared to 2007 second quarter net income of $4.28bn or $1.64 per diluted share.

Second quarter 2008 adjusted net loss, was $1.32bn or $0.51 per diluted share, compared to adjusted net income of $4.63bn or $1.77 per diluted share for the second quarter of 2007.

The continuation of the weak U.S. housing market and disruption in the credit markets, as well as global equity market volatility, had a substantial adverse effect on AIG’s results in the second quarter, the company said.

Net loss for the first six months of 2008 was $13.16bn or $5.11 per diluted share, compared to net income of $8.41bn or $3.21 per diluted share in the first six months of 2007. Adjusted net loss for the first six months of 2008 was $4.88bn or $1.90 per diluted share, compared to adjusted net income of $9.02bn or $3.44 per diluted share in the first six months of 2007.

Included in the second quarter 2008 net loss and adjusted net loss was a pre-tax charge of approximately $5.56bn ($3.62bn after tax) for a net unrealised market valuation loss related to the AIG Financial Products (AIGFP) super senior credit default swap portfolio. In addition, the second quarter of 2008 included a pre-tax net loss of $518m ($337m after tax) for a credit valuation adjustment on AIGFP’s assets and liabilities in accordance with FAS 157 and FAS 159.