A.I.G. Seeks $40 Billion Bridge Loan from Federal Reserve Aid to Survive

September 15, 2008 by · Leave a Comment
Filed under: Industry News 

After this 500+ point Dow Jones Index massacre we are seeing another potential collapse in the making.  AIG is now seeking a bridge-loan from The Fed to keep it afloat.  AIG is worried that a ratings downgrade could spell disaster for the insurance firm.  Paulson has already made statements to the affect of a “no more bailout” policy from the US Treasury.  There are even rumors that JPMorgan and Goldman Sachs could need a capital infusion soon as well but I have not read anything solid enough to substantiate that claim at this point.

AIG Article:

The American International Group (AIG) is seeking a $40 billion bridge loan from the Federal Reserve, as it faces a potential downgrade from credit ratings agencies that could spell its doom, a person briefed on the matter said Sunday night.

Ratings agencies threatened to downgrade the insurance giant’s credit rating by Monday morning, allowing counterparties to withdraw capital from their contracts with the company. One person close to the firm said that if such an event occurred, A.I.G. may survive for only 48 hours to 72 hours.

A.I.G.’s sickly financial health emerged late into one of the most tumultuous days in Wall Street history. Lehman Brothers, the 158-year-old investment bank, is expected to file for bankruptcy protection Sunday night, while Bank of America has agreed to buy Merrill Lynch for $50.03 billion.

It has already raised $20 billion this year. But even that enormous capital raise may not be enough.

Though this past weekend was convened to focus on Lehman, the Wall Street chieftains who gathered at the Federal Reserve Bank of New York also pondered a solution for A.I.G. The firm had become one of the biggest underwriters of complex debt securities known credit default swaps, used as insurance for a wide range of products, including the mortgage instruments that have been the bane of Wall Street for the past year and a half.

A.I.G.’s stock has fallen 79 percent over the past year, closing on Friday at $12.14.

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