Fed giving AIG $40 billion

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BY JEANNINE AVERSA
AP Economics Writer | Monday, November 10, 2008 | (8 comment(s))

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.

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40 Billion wrote on Nov 10, 2008 11:42 AM:

" equates to $144 per person based on the true americans that voted this past election of 300 million. Perhaps your math needs some work if you think we should give 1 million to every family, then you'd need $100,000,000,000,000 (based on 100 "Families") which last i checked is $100 Trillion or 50x the national debt. "

Fun with arithmetic wrote on Nov 10, 2008 11:25 AM:

" I'm sorry, what did I not calculate correctly? I know there's a lot of zero's, but I believe $160 million is 4/10ths of 1 percent of $40 billion. I'll I'm saying is, give every tax-paying family of legal citizens $1 million. It's a lot cheaper than sending $40 billion to AIG. I don't have an opinion either way on the bailout, and haven't read enough to know the ramifications of NOT helping AIG. I did make it well past second grade, I do have cable, my son plays his x-box and I try to stay away from eating too many chips and frozen pizza. But thanks for the health tips. "

RE And Here Comes wrote on Nov 10, 2008 10:07 AM:

" Hey, lets not forget that Obama is not in office yet, that goof ball you probably voted in is still at the wheel. Sorry, but another 40 billion to a company that sent their high executives to a $1000 a night vacation in Hawaii just seems like a complete waste. I think it's another way for Bush to try and destroy this country more before he leaves office. I think it should have gone towards people who have lost or are losing their jobs, homes, health benefits. Not to a company that should know how to handle money but failed miserably!! "

To Fun wrote on Nov 10, 2008 9:33 AM:

" Good grief! Can you even comprehend SIMPLE arithmetic? Where do these ridiculous posts originate? Are you still in second grade? THINK, just a little bit before you grace us with your Rainman genius. Or better yet, just sit back and put a little trust in folks with brains and education. You still have your cable tv, x-box and plenty of chips and frozen pizza, right? "

Fun with arithmetic wrote on Nov 10, 2008 9:08 AM:

" $40 billion? That's a lot. But think about this. The population of the U.S. is somewhere around 320 million, right? Lets cut that in half to say there are 160 million families. If the government can hand out $40 billion on a whim to a struggling company, why couldn't the government give out just $1 million to every tax-paying family unit? That would only cost $160 million, which is less than half of one percent of $40 billion. Couldn't all of us use a $1 million personal bailout? But that would ruin our economy. There would be no one left who would be willing to do neccessary menial and manual labor. Everyone would be blowing it at the boats. "

AND HERE COMES THE SPREAD THE WEALTH wrote on Nov 10, 2008 8:36 AM:

" And their off...everyone and every business with the corporate greed and their hands out. Why should be strive to achieve, we have demorcates now controlling everything and well, all we have to do is be born and let the goverment and middle class keep working to take care of us. Isn't that part of the only things we have a promised to us..being born, goverment supporting us, payiny taxes and die. "

ralph wrote on Nov 10, 2008 8:12 AM:

" This is the same company that went on a retreat for their management after they received the first handout. Now we are gonig to have to give money to everyone. Government keeps saying "but these are an important part in our economy". Now the auto makers, whose next. Let the financial industry fall where it must. That is all part of owning a business or not owning a business. Where are we getting all this money from? Are they printing it at night! "

mother of four wrote on Nov 10, 2008 7:18 AM:

" ARE YOU KIDDING ME??!! They were one of the first bailed out and now they are taking another bite at the apple. I guess they should have done some restructuring instead of CEO bonuses and fancy conferences in hotels that little ol’ us on the main street have only dreamed of. WE are now paying for this. The article said they will now have restrictions...but how can we trust the government to restrict anyone! They can’t even balance their own books and it’s the governments “free hand” that got us into this mess in the first place. "

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