US government could bail out insurance giant AIG in U-turn deal
Wednesday 17 September 2008
The US government could end up controlling the insurance giant AIG under a deal being considered late last night.
An agreement for the US Treasury to bail out the troubled company would be a dramatic U-turn for the government, but AIG's pivotal role in the financial markets led many Wall Street executives to describe the company as "too big to fail".
Reports suggested a bridge loan of more than $80bn (£45bn) could be made available to AIG, but with conditions, including the issue of warrants that would severely dilute the company's existing investors and potentially turn the US Treasury into the biggest single shareholder.
Government intervention was put back on the table after crisis talks to save the company went into a fifth day with diminishing hope for a private sector solution.
Participants said that time was running out following a downgrade of the company's credit rating, and amid mounting concern that its bankruptcy could cause chaos in the world's credit markets.
The overnight decision by the three main rating agencies to cut AIG's credit rating means the insurer can now be asked to post billions of dollars in additional collateral to the Wall Street banks who use it to insure $440bn in fixed-income assets.
With AIG so deeply enmeshed in the world's capital markets, the Federal Reserve and the US Treasury have been working closely with the company and its advisers to try to hammer out a rescue deal, and AIG shares swung wildly yesterday amid a swirl of contradictory rumours about whether the government might extend some of the $80bn in loans it could need to stay afloat.
AIG had been huddled with advisers since Friday night, when the rating agency Standard & Poor's first threatened a downgrade. The company – until recently the world's largest insurer – has profitable businesses it can sell, but needs bridging loans to tide it over until it can find buyers.
Hank Greenberg, its founder who was ousted as chief executive in 2005, said the government should help to save "a national treasure" which had been brought low not because it was insolvent, but because of a short-term liquidity crisis.
Jonathan Wilmot, strategist at Credit Suisse, said a liquidation of AIG would strain credit markets already reeling from the collapse of Lehman Brothers, and would trigger a new wave of writedowns by financial institutions.
- 1 Sabina Altynbekova, the girl branded 'too good looking' for volleyball, says social media obsession with her is a 'bit much'
- 2 Disney heiress Abigail disowns her share of family profits in West Bank company
- 3 Israel's propaganda machine is finally starting to misfire
- 4 Zayn Malik on Israel-Gaza: One Direction singer bombarded with Twitter death threats after posting #FreePalestine
- 5 'Hello mum, this is going to be hard for you to read ...'
Sally Farmiloe dead: Howards' Way actress, and former mistress of Jeffrey Archer, dies aged 60
Women in Turkey have a laugh in public at the deputy Prime Minister's expense
Sabina Altynbekova, the girl branded 'too good looking' for volleyball, says social media obsession with her is a 'bit much'
Disney heiress Abigail disowns her share of family profits in West Bank company
Australian model Robyn Lawley stages naked protest against huge coal mine seven times the size of Sydney Harbour
The secret report that helps Israel hide facts
Land for gas: Merkel and Putin discussed secret deal could end Ukraine crisis
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
A day in the life of Vladimir Putin: The dictator in his labyrinth
Putin is 'thuggish, dishonest and reckless', says British ambassador to US
Richard Dawkins tweets: 'Date rape is bad, stranger rape is worse'
- < Previous
- Next >
iJobs Money & Business
£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...
£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...
Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...
£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...