The Federal Reserve on Wednesday agreed to provide insurance giant American International Group Inc with a loan of up to US$37.8 billion, on top of one made to the troubled company last month.
Under the new program, the Federal Reserve Bank of New York will borrow up to US$37.8 billion in investment-grade, fixed-income securities from AIG in return for cash collateral. These securities were previously lent by AIG’s insurance company subsidiaries to third parties.
The arrangement will help AIG secure funds on an as-needed basis, the New York-based insurer said in a statement.
As of Monday, about US$37.2 billion in securities were available for loans under AIG’s securities lending program.
On the brink of failure last month, AIG was bailed out when the government offered it a US$85 billion loan during the ongoing credit crisis that saw Lehman Brothers Holdings Inc file for bankruptcy protection and the sale of Merrill Lynch & Co to Bank of America Corp. In return for the two-year loan, the government received warrants to purchase up to 79.9 percent of AIG.
The deal for the additional Fed loan came after AIG was castigated by lawmakers and the White House for spending hundreds of thousands of dollars on a luxurious California retreat just days after getting the federal bailout.
Lawmakers probing the company’s meltdown said they were enraged that executives of AIG’s main US life insurance subsidiary spent US$440,000 on the retreat.
White House press secretary Dana Perino on Wednesday called the event “despicable.”
AIG issued a statement saying the “business event” was planned months before the Sept. 16 bailout and that it was held for top independent life insurance agents, not AIG employees. Of the 100 attendees, only 10 worked for the AIG unit hosting the event, it said.
The insurer said CEO Edward Liddy sent a letter to Treasury Secretary Henry Paulson “clarifying the circumstances” of the event. In the letter Liddy assured Paulson that AIG is “reevaluating the costs of all aspects of our operations in light of the new circumstances in which we are all operating.”
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