American International Group Inc (AIG) will get access to up to US$30 billion of new capital after getting a commitment for US$150 billion in aid last year that gave the US government a stake of nearly 80 percent.
The latest bailout increases the US government’s commitment to keeping AIG on life support, and avoids for now any crippling credit rating downgrades that could force AIG to come up with billions of dollars it might not have.
The move came after the company posted a record US$61.7 billion quarterly loss on Monday.
“It’s a pretty strong reminder that the US Treasury is still all that stands between the current market environment and the ongoing threat of systemic financial meltdown,” said Christopher Garman, head of Garman Research LLC in Orinda, California, and a former Merrill Lynch bond strategist.
In agreeing to a new bailout, the Treasury Department and the Federal Reserve cited AIG’s operations in more than 130 countries, its role as an insurer for more than 100,000 entities and its more than 30 million US policyholders. They said urgent action was needed now to keep AIG in business.
“Given the systemic risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high,” they said in a joint statement.
Speaking on a conference call, AIG chief executive Edward Liddy called the market “a pretty crummy place” right now, and said fixing the insurer could take “several years.”
Most of the loss stemmed from big writedowns tied to credit default swaps and other toxic debt.
AIG lost more in the fourth quarter of last year than it made from 2001 to 2007, when net income totaled more than US$58 billion.
The latest loss equaled about US$470,000 a minute, and was a record for a US company, Thomson Reuters data shows.
It would take a person spending US$1 million per day, everyday, the next 169 years to spend as much money as AIG lost during the fourth quarter, which lasted just 92 days.
The US government also acknowledged the bailout might not be AIG’s last. It said fixing the insurer “will take time and possibly more government support if markets do not stabilize and improve.”
Meanwhile, former AIG chief executive Maurice “Hank” Greenberg, 83, has sued the company he led for 38 years, saying it misled investors about its exposure to subprime mortgages.
Greenberg claimed in papers filed in federal court in Manhattan on Monday that the company has ruined his fortune by lying about its financial health.
The lawsuit says Greenberg, who served as AIG’s chief executive from 1967 until he retired in March 2005, was the AIG’s largest non-institutional shareholder.
Greenberg was forced out amid a controversy in spring 2005 when AIG restated its financial statements for the previous five years, acknowledging accounting improprieties, including “improper or inappropriate transactions.”
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