American International Group, the insurance giant better known as AIG, was hoping that a cobbled-together package of asset sales and an injection of cash from private equity can stop the company going into a death spiral like Lehman Brothers and Bear Stearns before it.
Company executives were huddled with advisers last night planning a rescue deal, following a threat on Friday by Standard & Poor's, the credit rating agency, to downgrade the company's debt. AIG shares collapsed by 31 per cent in the hours after that threat was made, and Robert Willumstad, recently installed as chief executive, made plans to bring forward a review of the business that was previously scheduled for 25 September.
The emergency restructuring plan, which AIG was aiming to announce before the start of trading this morning, is likely to include the disposal of major assets including its aircraft leasing business, International Lease Finance Corp. It is also believed to be considering disposals of assets related to its property and casualty insurance businesses.
But shares fell further still after Wall St opened this afternoon, with more than 40 per cent lopped off the price.
The New York-based insurer has already raised $20bn (£11bn) in fresh capital this year, and a further capital injection from new investors was rumoured to be part of the latest rescue plan. The company and its financial adviser, JPMorgan Chase, were working into the night on the details, which remained fluid.
AIG was lured from its tried and trusted business of general and life insurance into more exotic areas of financial markets, including in the mortgage market, by providing insurance for the credit default swaps used widely on Wall Street. Its losses this year – more than $13bn and counting – have left its reputation for prudence in tatters. The company is also under investigation over claims it inappropriately accounted for all the derivatives on its books.
As the share price has declined, it has become more expensive for AIG to raise funds by issuing equity, and an S&P downgrade would make it much more expensive to raise debt financing, too. S&P credit analyst Rodney Clark said: "Additional market value losses will place some strain on the company's resources."
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