U.S. Government plans to buy AIG

The US government is to buy a $40bn equity stake in troubled insurer American International Group – increasing its investment in the company to a total of $150bn as it reported $24.47bn of quarterly losses.
AIG, best known in the UK as Manchester United's shirt sponsor, is to receive the capital injection as part of a restructured package of funds from the Federal Reserve and the Treasury intended as a longer-term investment than the original monies offered.

The Fed originally offered AIG an $85bn credit lifeline in mid-September, and handed over a further $37.8bn last month when it became apparent that the original facility was not enough. Under the new structure, the Treasury will buy $40bn of preferred shares in AIG – which in return will pay an annual 10pc dividend – as part of the Troubled Assets Relief Programme.

The more permanent investment will allow the Fed to reduce its $85bn credit line to $60bn, and a further $50bn will be provided to purchase distressed assets from AIG which are to be then placed in a pair of financing vehicles. In addition, some of the loan terms have been eased to make it easier for AIG to meet its commitments.

The new structure was hatched by AIG chairman Edward Liddy, who was brought in after the government's first bail-out in September, and Neel Kashkari, the Treasury's interim assistant secretary for financial stability. It is similar to one first suggested by former AIG chairman Hank Greenberg, who remains a major shareholder in AIG, although it is not known whether he was instrumental in these negotiations.

Mr Kashkari said yesterday that the decision was necessary to prevent yet more turmoil in the markets. "Today's action was a one-off event," he said. "It is not the start of a new programme." The revised investment package should stabilise the company in order to allow Mr Liddy to continue with his plan of selling off major parts of AIG, including its personal insurance arm, its life and retirement businesses and its aircraft leasing arm.

Mr Liddy said he was in talks with lots of different buyers for each of the various up-for-sale businesses, and that he planned to announce several transactions in the current quarter. News of the investment came as AIG announced a net loss of $24.47bn in the three months to September, against a profit of $3bn in the same period last year.

The results include $7.05bn of unrealised losses and $18.31bn in investment writedowns.



0 Responses to U.S. Government plans to buy AIG