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AIG gets lifeline as shares go into free fall
Posted: 16 September 2008 0850 hrs
NEW YORK: Struggling US insurance giant American International Group was thrown a lifeline Monday by New York authorities, who said the company could borrow some US$20 billion from its subsidiaries.
New York Governor David Paterson said he had called on regulators "to provide the authorisation, such that AIG can access US$20 billion of its assets through its subsidiaries for the purpose of posting these assets as collateral."
Paterson assured reporters at a press conference that the company was financially sound but "right now they are having a liquidity problem as they need immediate access to capital."
The lifeline failed to impress investors though as AIG shares plunged some 61 per cent on the stock market on Monday, losing some US$20 billion in market value. In just a year, the group has lost 93 per cent of its value and is only worth some US$12.8 billion.
It has primarily been shaken by fears that it could be the next domino to fall in the worst banking crisis to shake Wall Street since the Great Depression.
AIG, saddled with toxic mortgage-backed derivatives and facing the imminent threat of a ratings downgrade, has reportedly turned to the US Federal Reserve for US$40 billion in bridge financing, according to the New York Times.
It would be a desperate attempt to stave off the same type of liquidity crisis that has felled Bear Stearns and Lehman Brothers, which filed for bankruptcy protection on Monday.
"I want to underscore the fact that no taxpayer dollars are involved. This is not a government bailout. It is simply giving AIG in effect the ability to provide a bridge loan to itself," Paterson stressed Monday.
And he said he had asked his superintendent of insurance, Eric Dinallo, to hold talks with the Federal Reserve "about the possible ability of the federal government to be involved in some type of arrangement."
One analyst at a major French bank, speaking earlier on condition of anonymity, said: "I can't imagine the Fed letting AIG fail."
The Federal Reserve from New York confirmed Monday that it had held a meeting about the AIG crisis with representatives from the state, the treasury and "a group of financial institutions" whose members were not disclosed.
AIG, the largest insurer in the United States with 74 million customers in 130 countries, and until recently, the largest worldwide, has this year posted losses of US$18 billion from guarantees it wrote on mortgage-backed derivatives.
AIG has already had to write down US$25 billion in "credit default swaps" (CDS) depreciation because of the drop in real estate values that they are pegged to.
Trying to shore up its finances, AIG is seeking a fresh infusion of capital, following its US$20 billion capital raising in May.
But Treasury Secretary Henry Paulson has ruled out investing any public funds in helping AIG.
"Let me say what is going on right now has got nothing to do with any bridge loan from the government," Paulson said Monday referring to the New York decision.
"What's going on in New York is a private sector effort, again focused with dealing on an important issue that I think is important that a financial system work on right now."
According to business channel CNBC, the Treasury is trying to pressure the banks Goldman Sachs and JPMorgan Chase into putting together a US$70 to US$75 billion loan for AIG.
Unlike other insurers, AIG finds itself in the thick of the current crisis because of the high volume of credit fault swaps it has issued.
Credit default swaps are complex derivatives that insure investors against payment defaults by a bond issuer. They have created a complex intertwining between the ailing financial institutions, and exacerbated the current crisis.
According to a US Securities and Exchange filing, the company had an exposure of US$441 million worth of the instruments as of June 30, 2008.
The 89-year-old company is expected in the coming days to unveil a restructuring plan, which it is believed could include the sell-off of its plane-leasing unit, International Lease Finance Corporation, which manages a fleet of some 900 planes valued at about US$50 billion.
Posted: 16 September 2008 0850 hrs
NEW YORK: Struggling US insurance giant American International Group was thrown a lifeline Monday by New York authorities, who said the company could borrow some US$20 billion from its subsidiaries.
New York Governor David Paterson said he had called on regulators "to provide the authorisation, such that AIG can access US$20 billion of its assets through its subsidiaries for the purpose of posting these assets as collateral."
Paterson assured reporters at a press conference that the company was financially sound but "right now they are having a liquidity problem as they need immediate access to capital."
The lifeline failed to impress investors though as AIG shares plunged some 61 per cent on the stock market on Monday, losing some US$20 billion in market value. In just a year, the group has lost 93 per cent of its value and is only worth some US$12.8 billion.
It has primarily been shaken by fears that it could be the next domino to fall in the worst banking crisis to shake Wall Street since the Great Depression.
AIG, saddled with toxic mortgage-backed derivatives and facing the imminent threat of a ratings downgrade, has reportedly turned to the US Federal Reserve for US$40 billion in bridge financing, according to the New York Times.
It would be a desperate attempt to stave off the same type of liquidity crisis that has felled Bear Stearns and Lehman Brothers, which filed for bankruptcy protection on Monday.
"I want to underscore the fact that no taxpayer dollars are involved. This is not a government bailout. It is simply giving AIG in effect the ability to provide a bridge loan to itself," Paterson stressed Monday.
And he said he had asked his superintendent of insurance, Eric Dinallo, to hold talks with the Federal Reserve "about the possible ability of the federal government to be involved in some type of arrangement."
One analyst at a major French bank, speaking earlier on condition of anonymity, said: "I can't imagine the Fed letting AIG fail."
The Federal Reserve from New York confirmed Monday that it had held a meeting about the AIG crisis with representatives from the state, the treasury and "a group of financial institutions" whose members were not disclosed.
AIG, the largest insurer in the United States with 74 million customers in 130 countries, and until recently, the largest worldwide, has this year posted losses of US$18 billion from guarantees it wrote on mortgage-backed derivatives.
AIG has already had to write down US$25 billion in "credit default swaps" (CDS) depreciation because of the drop in real estate values that they are pegged to.
Trying to shore up its finances, AIG is seeking a fresh infusion of capital, following its US$20 billion capital raising in May.
But Treasury Secretary Henry Paulson has ruled out investing any public funds in helping AIG.
"Let me say what is going on right now has got nothing to do with any bridge loan from the government," Paulson said Monday referring to the New York decision.
"What's going on in New York is a private sector effort, again focused with dealing on an important issue that I think is important that a financial system work on right now."
According to business channel CNBC, the Treasury is trying to pressure the banks Goldman Sachs and JPMorgan Chase into putting together a US$70 to US$75 billion loan for AIG.
Unlike other insurers, AIG finds itself in the thick of the current crisis because of the high volume of credit fault swaps it has issued.
Credit default swaps are complex derivatives that insure investors against payment defaults by a bond issuer. They have created a complex intertwining between the ailing financial institutions, and exacerbated the current crisis.
According to a US Securities and Exchange filing, the company had an exposure of US$441 million worth of the instruments as of June 30, 2008.
The 89-year-old company is expected in the coming days to unveil a restructuring plan, which it is believed could include the sell-off of its plane-leasing unit, International Lease Finance Corporation, which manages a fleet of some 900 planes valued at about US$50 billion.
