FT.com print article
Financial
Page 1 of 1
COMPANIES
FINANCIAL SERVICES
Close
Fate of AIG in US government's hands as chances of
private sector bail-out recede
By Aline van Duyn in New York, Francesco Guerrera in,London and Krishna Guha in Washington
Published: September
17 2008 03
:00 | Last updated: September
17 2008 03
:00
The survival of AIG, one of the world's largest insurers, depended on the US government yesterday
after hopes of a private sector bail-out appeared to have faded.
Regulators and company executives held a fresh round of emergency meetings at the New York
Federal Reserve amid fears that the collapse of the troubled insurer would further destabilise the
global financial system.
The talks took on renewed urgency after a series of sharp credit rating cuts on Monday sent AIG's
shares into a further tailspin and its debt traded at highly distressed levels. Amid increasingly
desperate lobbying for government help, David Paterson, New York's governor, said the
beleaguered insurer had "a day" to solve its problems.
Bankers said the company's future now depended on whether the government was prepared to
provide a financial lifeline, at least on a temporary basis. The government has stressed its
reluctance to provide any tax-payers money to prop up AIG. However, one possible option could be
for a loan to be made via a third party, such as bank which can access funding from the Federal
Reserve.
Estimates for the size of the funds needed to ensure liquidity for the insurer continued to grow. The
latest estimates were that it would need some $70bn to shore up its balance sheet, up from the
$40bn that was discussed over the weekend.
AIG is the biggest provider of commercial insurance in the US, one of the biggest writers of life
assurance there, and the biggest provider of fixed annuities, a popular retirement savings product.
It also has enormous global operations.
Once the biggest insurance company in the world, its market capitalisation has fallen to just over
$7.5bn.
Bankers involved in discussions said that any plan to try to raise some $70bn in loans from
investors had been scuppered by the credit downgrades and the sharp fall in AIG's shares. By
midday, they were down just over 40 per cent to $2.79.
The company's executives and its advisers were holed up in the offices of the New York Fed in an
attempt to at least give AIG more time to unwind its credit default swap positions, the source of
many of its recent losses.
People close to the discussions said government help was needed to give AIG time to separate
AIG's insurance operation from its troubled portfolios of credit default swaps and investments.
Goldman Sachs has been hired by AIG to assess the potential losses on its bad assets. JPMorgan
Chase and Blackstone are advising the company, while Morgan Stanley is helping the Fed consider
its options.
New York insurance regulators on Monday said AIG could access up to $20bn of capital held by life
insurance subsidiaries. However, this was dependent on the insurer securing a longer-term
financing plan, too, according to people involved in the plan.
Copyright The Financial Times Limited 2008
"FT" and "Financial Times" are trademarks of the Financial Times. Privacy policy | Terms
© Copyright The Financial Times Ltd 2008.
http://www.ft.com/cms/s/79b11296-845f-11dd-adc7-0000779fd18c,dwp_uuid=1c573... 17/09/2008