The U.S. will reduce the original $85 billion loan that saved New York-based AIG in September to $60 billion, buy $40 billion of preferred shares, and purchase $52.5 billion of mortgage securities owned or backed by the company, according to a person familiar with the matter. The funds will help AIG retire part of its credit-default swap holdings and bolster its securities lending operations, said the person, who declined to be identified because the plan hasn't been officially announced.
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.
he testified at the U.S. House Oversight and Government Reform Committee
hearing on the cause and effects of the AIG bailout
on Capitol Hill October 7, 2008. REUTERS/Larry Downing (UNITED STATES)
In addition to the $85 billion loan on Sept. 16, AIG got two government credit lines totaling $58.7 billion last month to cover losses, including $37.8 billion for securities lending.
Now, the two-year, $85 billion loan AIG received on Sept. 16 will be changed to $60 billion that must be repaid in five years. AIG will pay interest of 3 percent, rather than the original 8.5 percent, plus the London interbank offered rate, on amounts the firm borrows.
On amounts AIG doesn't draw down, it will pay interest of 0.75 percent, as opposed to 8.5 percent under the earlier agreement, the person said. AIG investors had complained the rates were so high that they almost guaranteed the company wouldn't have a chance to recover.
AIG gets another $40 billion from the Treasury's $700 billion Troubled Asset Relief Program. In exchange for the cash, the government receives preferred shares that pay 10 percent annual interest.
AIG could have raised $115 billion by disposing of all its units, Thomas Gallagher, an analyst at Credit Suisse Group AG, estimated in September.
While Allianz SE said Monday it marked down €650 million ($829.6 million) on its Dresdner Bank unit's asset-backed securities trading book in the third quarter, and warned of more pressure on its continuing operations.
"The challenging and volatile conditions in financial markets continue to impact our asset accumulation businesses," Allianz said. "Further impairments are therefore expected, hitting operating profit especially in the life/health”.
Related Posts :
Sources :
- Bloomberg: AIG May Get Expanded Government Funds of $150 Billion (Update1), November 10, 2008 03:45 EST
The Wall Street Journal: Allianz Warns of Continued Pressure, November 10, 2008, 5:04 A.M. ET
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In a related story, a man who got drunk and drove his car into a utility pole has been given millions of dollars by the government so he can buy a new one.
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