AIG To Get More From Government
Bloomberg reports that the AIG bank may receive more money from the U.S. federal government than previously announced.
The insurer may get an expanded bailout package worth $150 billion. That is $30 billion more than the original bailout package. Interest rates would be cut, and AIG would have more time to repay loans.
‘The U.S. will cut the original $85 billion loan that saved the New York-based insurer in September to $60 billion, buy $40 billion of preferred shares, and purchase $52.5 billion of mortgage securities owned or backed by AIG, according to a person familiar with the matter. The funds will help AIG retire part of its credit-default swap portfolio and bolster its securities lending operations, said the person, who declined to be identified because the plan hasn’t been officially announced,’ Bloomberg says.
‘The changes may give Chief Executive Officer Edward Liddy more time to salvage AIG, which needed U.S. help to escape bankruptcy after three quarterly losses exceeding $18 billion. Liddy’s plan to repay the original loan by selling units stalled as plunging financial markets cut into their value and forced potential buyers to shore up their own balance sheets.’
“It makes a lot of sense to renegotiate the terms,” Andrew Kligerman, an analyst at UBS AG, said in an interview before the disclosure. By giving AIG more time to sell businesses, the government “has a better opportunity to recover its capital.”
To call the new conditions beneficial for AIG would be an understatement: the company will pay 3% interest instead of 8.5%. On amounts AIG does not use, it will pay only 0.75% interest, which is 7.75% below the rate of the original plan.
The government felt forced to renegotiate the deal because other financial institutions have not bought AIG’s assets. The reason is that these companies themselves suffer tremendously as well.
Whatever the case, the focus should be on liquifying the market right now. If more money has to be used to do so, so be it.
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last I looked into this. AIG didn’t actually take the loans before – they were made available.
Their retreat looked really bad though, even though it’s purpose and extent was for the working person – not the exec’s