Wednesday, September 17, 2008

Et tu, AIG?

With Lehman Brothers, the Feds signaled that they would no longer bail out everyone. AIG called their bluff:
In an unprecedented move, the Federal Reserve Board is lending as much as $85 billion to rescue crumbling insurer American International Group, officials announced Tuesday evening.

The Fed authorized the Federal Reserve Bank of New York to lend AIG (AIG, Fortune 500) the funds. In return, the federal government will receive a 79.9% stake in the company.

Officials decided they had to act lest the nation's largest insurer file bankruptcy. Such a move would roil world markets since AIG (AIG, Fortune 500) has $1.1 trillion in assets and 74 million clients in 130 countries.

An eventual liquidation of the company is most likely, senior Fed officials said. But with the government loan, the company won't have to go through a tumultuous fire sale.

"[A] disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said in a statement.

The bailout marks the most dramatic turn yet in an expanding crisis that started more than a year ago with the mortgage meltdown. The resulting credit crunch is now toppling not only mainstay Wall Street players, but others in the wider financial industry.

The line of credit to AIG, which is available for two years, is designed to help the company meet its obligations, the Fed said. Interest will accrue at a steep rate of 3-month Libor plus 8.5%, which totals 11.31% at today's rates.

AIG will sell certain of its businesses with "the least possible disruption to the overall economy." The government will have veto power over the asset sales and the payment of dividends to shareholders.

The company's management will be replaced, though Fed staffers did not name the new executives. Edward Liddy, the former head of insurer Allstate Corp (ALL, Fortune 500)., will lead the company, the Wall Street Journal reported.

The board will remain. For customers, it will be business as usual, officials said.
At least the Government has the guts not to bail out America's auto industry. Oh, wait...


  1. This doesn't mean anything because it's different here.

  2. Now there is a rush to be the next company that is "too big to fail."
    Watch BoA and Wachovia trying to merge thier way into that status.

  3. AIG, Inc. specializes in insurance services and financial services. The company offers a diverse range of insurance products, annuities, mutual funds, and many other financial products. I read about the company on the Internet. My attention was captured by the clients’ reports mostly. On this great site I found out that the company tricks people in with low rates, which increase considerably once the contract is signed.