 AIG wins new bailout, posts losses
(China Daily)
Updated: 2008-11-11 07:52 American International Group Inc, the insurer bailed out by the US, got an expanded government rescue package valued at more than $150 billion after posting a fourth straight quarterly loss. The US will reduce the original $85 billion loan that saved New York-based AIG in September to $60 billion, buy $40 billion of preferred shares, and purchase $52.5 billion of mortgage securities owned or backed by the company, according to the Federal Reserve. The insurer lost $24.5 billion, or $9.05 a share in the period ended Sept 30, compared with profit of $3.09 billion, or $1.19, a year earlier, AIG said in a regulatory filing yesterday.
The changes in the loan may give Chief Executive Officer Edward Liddy more time to salvage AIG, which needed US help to escape bankruptcy after losses tied to home loans. Liddy's plan to repay the original loan by selling units stalled as plunging financial markets cut into their value and forced potential buyers to shore up their own balance sheets. "It makes a lot of sense to renegotiate the terms," said Andrew Kligerman, a New York-based analyst at UBS AG, in an interview before the disclosure. By giving AIG more time to sell units, the government "has a better opportunity to recover its capital," he said. The government, which allowed Lehman Brothers Holdings Inc to collapse on Sept 15, reversed its opposition to an AIG bailout the next day after the Federal Reserve concluded that the insurer's failure would "add to already significant levels of financial market fragility." The US then provided two more credit lines, worth a combined $58.7 billion, before restructuring the package. Subprime loans The new rescue may fix two AIG operations that are draining cash with the collapse of subprime mortgage markets. In the first, the US will provide up to $30 billion help buy the underlying assets of credit-default swaps that AIG sold to investors, including banks, the person said. AIG will contribute $5 billion. The insurer guaranteed $441 billion of fixed-income investments through the swaps for counterparties, including banks, as of June 30. AIG also will receive as much as $22.5 billion for its securities lending program, which lost money on investments made using collateral from securities it loaned to third parties. Agencies (China Daily 11/11/2008 page17) |
