Government provides new aid to AIG

WASHINGTON (AP) - The government on Monday provided new
financial assistance to troubled insurance giant American
International Group, including pouring $40 billion into the company
in return for partial ownership.
The action, announced jointly by the Federal Reserve and the
Treasury Department, was taken as it became increasingly clear that
an original financial lifeline thrown to AIG in September would not
be sufficient to stabilize the teetering company. All told, the
moves boost aid to the company to around $150 billion.
The $40 billion infusion comes from the recently enacted $700
billion financial bailout package. The government is buying
preferred shares of AIG stock, giving taxpayers an ownership stake
in the company. In turn, restrictions will be placed on executive
compensation at the firm.
As part of the new arrangement, the Federal Reserve is reducing
a $85 billion loan it had made available to AIG to $60 billion. The
Fed also is replacing a separate $37.8 billion loan to the
insurance company with a $52 billion aid package.
The actions were needed to "keep the company strong and
facilitate its ability to complete its restructuring process
successfully," the government said.
It marked the first time money from the $700 billion bailout
package Congress enacted last month has gone to any company other
than a bank.
The Treasury Department, which is overseeing the program, has
promised to inject $250 billion into banks in return for partial
ownership. The original notion behind the bailout package was to
help financial institutions lend money more freely again, one of
the main reasons the economy is in danger of getting stuck in a
long and painful recession.
Until Monday, all of AIG's bailout relief was coming from the
Fed.
The Fed, earlier this year, said it would loan a total of $123
billion to AIG. The insurance company was later allowed to access
another $20.9 billion through the Fed's "commercial paper"
program. That's where the Fed is buying mounds of companies'
short-term debt often used for crucial day-to-day expenses, such as
payrolls and supplies.
Monday's restructuring provides AIG with easier terms on the Fed
loans. The new package reduces the interest rate AIG will pay and
it will extend loan terms to five years from two years, reducing
the need for AIG to sell off business lines and other assets at
firesale prices in order to repay the government.
AIG reported Monday that continued financial market turmoil
resulted in a large third-quarter loss.
The New York-based company said it lost $24.47 billion, or $9.05
per share, after a profit of $3.09 billion, or $1.19 per share, a
year ago.
Results included pre-tax losses of $18.31 billion tied to the
declining value of AIG's investment portfolio. They were also hurt
by catastrophe losses and charges related to restructuring.
Excluding items, operating losses totaled $3.42 per share -
missing analysts' average loss estimate of 90 cents per share,
according to analysts.
In early October AIG said it would sell certain business units
to pay off the $85 billion Fed loan. The company, however, said it
plans to retain its U.S. property-and-casualty and foreign general
insurance businesses. It also plans to keep an ownership interest
in its foreign life-insurance operations.
AIG is a colossus on Wall Street and financial districts around
the globe, with operations in more than 130 countries and $1
trillion in assets on its balance sheet.
Besides life, property and other insurance offerings, AIG
provides asset-management services and airplane leases. Its myriad
businesses are also linked to mutual funds, annuities and other
retirement products held by millions of ordinary Americans.
But perhaps the biggest concern about AIG is the dizzying array
of complex financial instruments it structured for commercial
banks, investment banks and hedge funds around the globe - many of
which were directly or indirectly linked to the value of U.S.
mortgages.

(Copyright 2008 by The Associated Press. All Rights Reserved.)