AIG grabs at third lifeline after record losses
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The US government will throw a third lifeline to former insurance number one AIG, this time for $30 billion. The embattled American group announced a record loss of $61.7 million for the fourth quarter.
The recession gets worse and state help gets ever more generous. Having benefited already from $150 billion as a result of two bailouts, AIG will be saved once again.
The former number one in global insurance on Monday reported the biggest quarterly loss in US corporate history: $61.7 billion lost in three months. Compare that with a $37.7-billion dollar loss over the first nine months of 2008.
Too big to fail
There was a point when the AIG group envisaged bankruptcy - but the idea was brushed aside for fear of a domino effect on pension funds and other financial institutions around the world whose futures depend on the insurance giant. A giant which was considered “too big to fail” .
AIG’s board came to an agreement with the federal authorities on Sunday evening.
The Federal Reserve will be given preferred-stock interest options worth $30, which will in turn slightly lower interest rates on the previous $60-billion loan.
The 90-year-old AIG holding will be broken up into several parts and the insurer will hand over all or a part of its Asian and life insurance business to the federal authorities.
The main priority is to revalue the insurer on the markets. At the close of trading on Wall Street on Friday, AIG shares were at 42 cents, having lost 99 per cent of their value in a year. According to the Wall Street Journal, credit rating agencies have already signed off the new deal.
A possible solution to the problem is to put toxic assets all together in a "bad bank" but it’s an idea many are having trouble accepting.
"To regroup toxic assets in a 'bad bank' means the US accepts that these assets will lose value. That basically means privatising profits and nationalising losses. The markets understand that this is not going to generate much positive public opinion,” says Christian Stoffaes, a French market analyst.
And, according to certain experts, taxpayers will still have to pay tens of millions of dollars more to save AIG once and for all.