US government announces $85 bn loan to save AIG
The deal would avoid the biggest corporate bankruptcy ever and follows a govt bailout of mortgage lenders. In Pics: AIG I History of Lehman I Stocks to watch
By Agencies |
WASHINGTON: The US government has agreed to provide an $85 billion emergency loan to rescue the huge insurer AIG, the The Federal Reserve said on Tuesday. The Fed said the US Treasury Department was in full support of the decision.
The Fed determined that a "disorderly failure" of AIG could undermine already fragile financial markets.
The government will receive an 79.9 percent equity stake in AIG, the Fed said
The deal would avoid the biggest corporate bankruptcy ever and follows a government bailout of mortgage lenders Freddie Mac and Fannie Mae just over a week ago.
Earlier, US stocks clawed back from their biggest one-day drop in seven years, soothed by speculation about a government rescue of AIG, a likely sale of Lehman Brothers' investment bank to Britain's Barclays, and a better-than-expected quarterly profit from Goldman Sachs.
Morgan Stanley added a positive note after the close of trading when it reported a slight quarterly profit fall, setting it apart from rivals bleeding red ink.
Then AIG shares, which had sunk 21 percent in regular trading, fell as much as 48 percent in after-hours dealings after reports of a rescue that could wipe out shareholders.
The New York Times, which had reported that AIG could file as soon as Wednesday for bankruptcy protection, later reported the deal with the Fed.
The Fed determined that a "disorderly failure" of AIG could undermine already fragile financial markets.
The government will receive an 79.9 percent equity stake in AIG, the Fed said
The deal would avoid the biggest corporate bankruptcy ever and follows a government bailout of mortgage lenders Freddie Mac and Fannie Mae just over a week ago.
Earlier, US stocks clawed back from their biggest one-day drop in seven years, soothed by speculation about a government rescue of AIG, a likely sale of Lehman Brothers' investment bank to Britain's Barclays, and a better-than-expected quarterly profit from Goldman Sachs.
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Morgan Stanley added a positive note after the close of trading when it reported a slight quarterly profit fall, setting it apart from rivals bleeding red ink.
Then AIG shares, which had sunk 21 percent in regular trading, fell as much as 48 percent in after-hours dealings after reports of a rescue that could wipe out shareholders.
The New York Times, which had reported that AIG could file as soon as Wednesday for bankruptcy protection, later reported the deal with the Fed.
AIG CONTRACTS AT STAKE
Both Moody's and Fitch Ratings cut AIG's rating by two notches on Monday, while Standard & Poor's Rating Services lowered its rating by three pegs.
The downgrades meant that AIG's trading partners can require the insurer to post an additional $14.5 billion in collateral, according to an August 6 regulatory filing.
They could also result in the early termination of some contracts, requiring an additional $5.4 billion in payments, the filing showed.
"You don't just have a potential impact on the reinsurer side, you have it on the institutions that might be holding AIG paper," said Lorraine Tan, director of research for Asia at Standard and Poor's in Singapore.
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"This would have a much bigger impact than a bank going down like Lehman or Bear (Stearns), or even a Wachovia (Corp) or WaMu in the US AIG has a much bigger presence globally."Download
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