US government could bail out insurance giant AIG in U-turn deal

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.

peopleFrankie Boyle responds to referendum result in characteristically offensive style
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
New Articles
Life and Style
Couples have been having sex less in 2014, according to a new survey
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam