AIG Gets Expanded Bailout - Interview with CEO Edward Liddy
AIG got a $150 billion government rescue package, almost doubling the initial bailout of less than two months ago as the insurer burns through cash at a record rate. The Amount meets the expectation that AIG may get $150 bln expanded bailout.
AIG will get lower interest rates and $40 billion of new capital from the government to help ease the impact of four straight quarterly deficits, including a $24.5 billion third- quarter loss posted today by the New York-based company.
The first rescue plan wasn't sustainable, Liddy said during a conference call today. AIG's third-quarter loss equaled $9.05 a share and compared with profit of $3.09 billion, or $1.19, a year earlier, AIG said in a statement. Losses in the past year erased profit from 14 previous quarters dating back to 2004.
To improve AIG's chances of repaying its debts, the U.S. will reduce the $85 billion loan to $60 billion, buy $40 billion of preferred shares, and purchase $52.5 billion of mortgage securities owned or backed by the company, the Federal Reserve said today in a separate statement.
To maintain stability of the financial market, The U.S. also seized control of Fannie Mae and Freddie Mac, lenders that guarantee or own about 40 percent of the $12 trillion in U.S. mortgages, in September. The next month, Treasury Secretary Henry Paulson unveiled a $250 billion program to recapitalize banks.
The new AIG package includes a freeze on the bonus pool for 70 top executives and imposed limits on severance benefits, the Treasury said in its statement. Lawmakers had said failing companies getting taxpayer bailouts shouldn't be using the money for multimillion-dollar pay packages.
AIG guaranteed about $372 billion of fixed-income investments as of Sept. 30, compared with $441 billion three months earlier. AIG booked more than $7 billion in writedowns during the quarter on the value of the swaps.
The New York Fed also will lend as much as $22.5 billion to a new limited-liability company to fund the purchase of residential mortgage-backed securities from AIG's U.S. securities-lending collateral portfolio. AIG will make a $1 billion subordinated loan to the new entity and bear the risk for the first $1 billion of any losses, the Fed said. The securities lending operation and the previous $37.8 billion credit line from the Fed will be shut down.
Securities lending accounted for $11.7 billion, or about two-thirds, of the $18.3 billion in impaired investments in the third quarter, AIG said.
Edward Liddy, AIG's CEO, plans to sell life insurance operations in the U.S., Europe and Japan, along with the firm's reinsurer, airplane lessor, consumer finance unit and asset manager. The former CEO of Allstate Corp. was appointed by the U.S. as a condition of AIG's bailout. Liddy said he expects to announce ``several'' unit sales in the fourth quarter.
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Sources :
- Bloomberg: AIG Gets Expanded Bailout, Posts $24.5 Billion Loss (Update4), November 10, 2008 13:04 EST
Bloomberg Video: Video: Spotlight: American International Group, November 10, 2008 10:25 am EST
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