Will Man U suffer the same fate as West ham???
AIG in free fall on downgrade fears
Posted: 16 September 2008 0544 hrs
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NEW YORK: Shares in American International Group plummeted more than 60 per cent on Monday on fears the US insurance giant 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 40 billion dollars 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, and contributed to Merrill Lynch's decision this weekend to sell itself to Bank of America.
One analyst at a major French bank, speaking on condition of anonymity, said: "I can't imagine the Fed letting AIG fail."
Over the weekend, AIG executives reportedly met with New York state insurance regulators to look into ways to bolster its liquidity.
AIG shares slid 60.8 per cent to 4.76 dollars on Monday on the New York Stock Exchange. So far this year, its shares are down 90 per cent.
AIG, the largest insurer in the United States, and until recently, the largest worldwide, has this year posted losses of 18 billion dollars from guarantees it wrote on mortgage-backed derivatives.
AIG has already had to write down 25 billion dollars 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 20 billion dollar capital raising in May. But during the weekend, it reportedly turned down offers of capital from private equity firms including JC Flowers, fearing it would be forced to cede control of the company.
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 441 million dollars worth of the instruments as of 30 June 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, that manages a fleet of some 900 planes valued at about 50 billion dollars.
But the most pressing problem the company faces is the downgrade hinted at by ratings agency Standard and Poor's on Friday. Such a downgrade would make raising more capital more expensive.
Currently AIG is rated AA- for its long term debt, and A-1+ for its short-term debt.
The New York-based company has a global reach. The company's founder, Cornelius Vander Starr, formed an insurance company called American Asiatic Underwriters, in Shanghai in 1919, years before he founded a company in New York in 1926 that would become part of AIG.
The company is also the largest sponsor of the Manchester United soccer club, having signed a 101.2 million dollar deal with the club in 2006.
AIG has 74 million customers in 130 countries. - AFP/de
Note John Terry was sent off for a somewhat similar offence afew hours later in the Man City game against Chelsea 
