AIG Profit Doesn't Matter for Now (Update 1)

NEW YORK (TheStreet) - AIG (AIG) posted a higher-than-expected fourth quarter profit on a huge tax gain, but in the long term shareholders' best bet for a boost will come from a much anticipated buyback plan.

The insurance giant reported a profit of $ 19.8 billion in the fourth quarter of 2011, compared to $11.176 billion in the year-ago quarter. The profit included a deferred tax asset valuation release of $17.7 billion.

The company said it expects to achieve a more or less consistent level of profitability in the future that would allow it to realize tax benefits associated with massive losses sustained during the financial crisis years.

After- tax operating income came in at $1.6 billion or 82 cents per share compared to a loss of $2.2 billion or $15.99 per diluted share in the year-ago quarter.

Analysts were expecting a profit of 63 cents per share according to Thomson Reuters.

CEO Robert Benmosche sounded an upbeat note in his commentary on the results. "We have a high degree of confidence in our future earnings prospects, which is a critical element in our assessment supporting the release of the deferred tax asset valuation allowance. As we look to 2012 and beyond, we anticipate we'll continue to be competitive in all areas of our core insurance business," Mr. Benmosche said in a statement.

Shares were rising 5% following the beat in aftermarket hours. AIG holds its conference call on Friday morning.

Shares of AIG are up more than 20% in 2012 after a dismal 52% decline in 2011.

Still, the driver of near-term stock returns may not come from earnings performance, but rather from the removal of its biggest overhang- the prospect of future sales of stock by the U.S. Treasury.

What will get investors really excited about AIG is any plans announced by management to use capital to buy back shares directly from the government, according to Josh Stirling, senior analyst at Sanford Bernstein.

Investors have been reluctant to build positions in the stock ahead of a big sale by the government for fear that it will pressure prices. Concerns that Uncle Sam, which still owns a 77% stake in AIG, may even consider selling shares at lower than $29 levels, roughly the price at which the Treasury breaks even on its investment in the company, has also weighed on the stock.