U.S. govt to pour further $30 bln into AIG – sources

NEW YORK, (Reuters) – The U.S. government will pour  another $30 billion or so into American International Group Inc  as the embattled insurer prepares to report the biggest loss in  history and struggles to sell assets.

AIG’s board approved on Sunday a new rescue package that  also includes more lenient terms on an existing government  investment in its preferred shares and a lower interest rate on  a government credit line, two sources familiar with the matter  said.

This would be the third time the government has had to step  up to save AIG, once the biggest insurer by market value whose  global reach may have made it too big to fail.

The rejigged bailout is also the latest example of how  federal regulators are having to revamp rescues for top  financial institutions as the global financial crisis deepens.
Last week, the government agreed to boost its equity stake  in Citigroup Inc to as much as 36 percent in a bid to bolster  the bank, already the recipient of billions of dollars in  taxpayer funds.

“The government really does not have the option of letting  AIG totally blow up,” said Robert Haines, senior insurance  analyst at CreditSights.
“Hopefully, the third bailout will be the charm,” he said.  “The counterparties on most of the book are (European) banks  that would be hammered if the U.S. walked away.”

Under the deal, the interest rate on AIG’s credit line from  the government would be cut to match the three-month London  Interbank Offered Rate (Libor), now about 1.26 percent, a  source with direct knowledge of the matter said.
This would save AIG about $1 billion a year.

AIG now pays 3 percentage points above three-month Libor on  the $60 billion credit line.

The additional equity commitment would give AIG the ability  to issue preferred stock to the government later, the sources  said.
AIG will also give the U.S. Federal Reserve ownership  stakes in American Life Insurance (Alico), which generates more  than half of its revenue from Japan, and Hong Kong-based life  insurance group American International Assurance Co (AIA) in  return for reducing its debt, they said.

AIG had been trying to sell Alico and part of AIA in a bid  to raise money to pay back the government.

AIG may also securitize some U.S. life insurance policies  and give them to the government to further reduce its debt, the  source said.
The company may securitize up to $10 billion under that  plan, one of the sources said.

Around the Web

Comments