AIG, unlike Lehman and Bear Stearns prior, actually has marketable assets. The insurance operations are running profitably, and the instrinsic value of a large scale insurance operation increases the odds of a substantial piece of AIG surviving.
Whether it be a gov't bailout, hostile takeover by Greenberg, or purchase by another firm, there should be life for AIG after a bankruptcy filing (at least for the insurance subsidiaires). AIG owns the most valuable insurance brand in China having been the first US insurance company licensed to write business in the country.
It will certainly be an interesting day tomorrow as the markets try to absorb whatever happens in the next few hours.
Whether it be a gov't bailout, hostile takeover by Greenberg, or purchase by another firm, there should be life for AIG after a bankruptcy filing (at least for the insurance subsidiaires). AIG owns the most valuable insurance brand in China having been the first US insurance company licensed to write business in the country.
It will certainly be an interesting day tomorrow as the markets try to absorb whatever happens in the next few hours.
Getting more unbelievable as each day passes:
Fed in AIG rescue - $85B loan
Government response reaches dramatic new level: U.S. will take 80% stake in nation's largest insurer to prevent global financial chaos.
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<!--endclickprintexclude--><!-- /REAP -->NEW YORK (CNNMoney.com) -- In an unprecedented move, the Federal Reserve Board is lending as much as $85 billion to rescue crumbling insurer American International Group, officials announced Tuesday evening.
The Fed authorized the Federal Reserve Bank of New York to lend AIG (AIG, Fortune 500) the funds. In return, the federal government will receive a 79.9% stake in the company.
Officials decided they had to act lest the nation's largest insurer file bankruptcy. Such a move would roil world markets since AIG (AIG, Fortune 500) has $1.1 trillion in assets and 74 million clients in 130 countries.
An eventual liquidation of the company is most likely, senior Fed officials said. But with the government loan, the company won't have to go through a tumultuous fire sale.
"[A] disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said in a statement.
The bailout marks the most dramatic turn yet in an expanding crisis that started more than a year ago with the mortgage meltdown. The resulting credit crunch is now toppling not only mainstay Wall Street players, but others in the wider financial industry.
The line of credit to AIG, which is available for two years, is designed to help the company meet its obligations, the Fed said. Interest will accrue at a steep rate of 3-month Libor plus 8.5%, which totals 11.31% at today's rates.
AIG will sell certain of its businesses with "the least possible disruption to the overall economy." The government will have veto power over the asset sales and the payment ofdividends to shareholders.
The company's management will be replaced, though Fed staffers did not name the new executives. The board will remain. For customers, it will be business as usual, officials said.
Taxpayers will be protected, the Fed said, because the loan is backed by the assets of AIG and its subsidiaries. The loan is expected to be repaid from the proceeds of the asset sales.
The government had resisted throwing a lifeline to AIG, hoping to entice investment firms to set up a $75 billion rescue fund. Officials opted not to bail out Lehman Brothers, which filed for bankruptcy on Monday. But by Tuesday night, it became clearer that the private sector would not step in to help AIG, which has a greater reach into other financial companies and markets than Lehman does.
"We are working closely with the Federal Reserve, the SEC and other regulators to enhance the stability and orderliness of our financial markets and minimize the disruption to our economy," said Treasury Secretary Henry Paulson. "I support the steps taken by the Federal Reserve tonight to assist AIG in continuing to meet its obligations, mitigate broader disruptions and at the same time protect the taxpayers."
Dramatic end, high stakes
The firm's options grew more limited as the day wore on. Its already-battered share price fell another 21% with more than 1 billion shares trading hands, and plummeted another 46% in after-hours trading.
At one point Tuesday morning, shares fell more than 70% - a day after losing 61% of their value.
The company, which did not return calls for comment and made no public statements about the deal, was scrambling to raise capital to stay afloat after being hit with credit rating agencies downgrades that is forcing it to come up with billions of dollars in additional collateral fast.
New York State officials, who regulate the insurance titan, had urged the federal government to rescue AIG. The state attempted to help AIG on Monday by allowing it to tap into $20 billion in assets from its subsidiaries if the company could comes up with a comprehensive plan to get the much-needed capital, said a state Insurance Department spokesman.
Pleased with the federal government's response, New York Gov. David Paterson said Tuesday night: "Policy holders will be protected. Jobs will be saved. Business will continue."
The funding became ever more crucial as the insurer was hit Monday night by a series of credit rating downgrades. The cuts meant AIG (AIG, Fortune 500) could be forced to post more than $13 billion in additional collateral.
Late Monday night, Moody's Investors Service and Standard & Poor's Ratings Services each said they had lowered their ratings. A few hours earlier, Fitch Rating had also downgraded AIG, saying the company's ability to raise cash is "extremely limited" because of its plummeting stock price, widening yields on its debt, and difficult capital market conditions.
The downgrade could force AIG to post $13.3 billion of collateral, Fitch said in a statement. Also, the moves would make it more expensive for AIG to issue debt and harder for it to regain the confidence of investors.
All the while, analysts urged the company to unveil its restructuring plan.
"Management needs to address investor concerns now before the market sell-off becomes a self-fulfilling prophecy," Rob Haines, analyst at CreditSights, said Tuesday.
Global ripples if firm were to fail
The failure of AIG could have caused unprecedented global ripple effects, said Robert Bolton, managing director at Mendon Capital Advisors Corp. AIG is a major player in the market for credit default swaps, which are insurance-like contracts that guarantee against a company defaulting on its debt. Also, it is a huge provider of life insurance, property and casualty insurance and annuities.
"If AIG fails and can't make good on its obligations, forget it," Bolton said. "It's as big a wave as you're going to see."
AIG has had a very tough year.
Rocked by the subprime crisis, the company has lost more than $18 billion in the past nine months and has seen its stock price fall more than 91% so far this year. It already raised $20 billion in fresh capital earlier this year.
Its troubles stem from its sales of credit default swaps and from its subprime mortgage-backed securities holdings.
AIG has written down the value of the credit default swaps by $14.7 billion, pretax, in the first two quarters of this year, and has had to write down the value of its mortgage-backed securities as the housing market soured.
The insurer could be forced to immediately come up with $18 billion to support its credit swap business if its ratings fall by as little as one notch, wrote John Hall, an analyst at Wachovia, on Monday.
This year's results have also included $12.2 billion in pretax writedowns, primarily because of "severe, rapid declines" in certain mortgage-backed securities and other investments.
The company brought in new management to try to turn the company around. In June, the company tossed out its chief executive, Martin Sullivan, and named AIG chairman Robert Willumstad, who joined AIG in 2006 after serving as president and chief operating officer of Citigroup (C, Fortune 500), in his place.
Fed in AIG rescue - $85B loan
Government response reaches dramatic new level: U.S. will take 80% stake in nation's largest insurer to prevent global financial chaos.
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</td> </tr> <tr> <td id="qForLinks"> - WaMu shares end 16% higher
- Fed in AIG rescue - $85B loan
- World markets turn sharply lower on AIG
- Subprime crisis: A timeline
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<!--endclickprintexclude--><!-- /REAP -->NEW YORK (CNNMoney.com) -- In an unprecedented move, the Federal Reserve Board is lending as much as $85 billion to rescue crumbling insurer American International Group, officials announced Tuesday evening.
The Fed authorized the Federal Reserve Bank of New York to lend AIG (AIG, Fortune 500) the funds. In return, the federal government will receive a 79.9% stake in the company.
Officials decided they had to act lest the nation's largest insurer file bankruptcy. Such a move would roil world markets since AIG (AIG, Fortune 500) has $1.1 trillion in assets and 74 million clients in 130 countries.
An eventual liquidation of the company is most likely, senior Fed officials said. But with the government loan, the company won't have to go through a tumultuous fire sale.
"[A] disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said in a statement.
The bailout marks the most dramatic turn yet in an expanding crisis that started more than a year ago with the mortgage meltdown. The resulting credit crunch is now toppling not only mainstay Wall Street players, but others in the wider financial industry.
The line of credit to AIG, which is available for two years, is designed to help the company meet its obligations, the Fed said. Interest will accrue at a steep rate of 3-month Libor plus 8.5%, which totals 11.31% at today's rates.
AIG will sell certain of its businesses with "the least possible disruption to the overall economy." The government will have veto power over the asset sales and the payment ofdividends to shareholders.
The company's management will be replaced, though Fed staffers did not name the new executives. The board will remain. For customers, it will be business as usual, officials said.
Taxpayers will be protected, the Fed said, because the loan is backed by the assets of AIG and its subsidiaries. The loan is expected to be repaid from the proceeds of the asset sales.
The government had resisted throwing a lifeline to AIG, hoping to entice investment firms to set up a $75 billion rescue fund. Officials opted not to bail out Lehman Brothers, which filed for bankruptcy on Monday. But by Tuesday night, it became clearer that the private sector would not step in to help AIG, which has a greater reach into other financial companies and markets than Lehman does.
"We are working closely with the Federal Reserve, the SEC and other regulators to enhance the stability and orderliness of our financial markets and minimize the disruption to our economy," said Treasury Secretary Henry Paulson. "I support the steps taken by the Federal Reserve tonight to assist AIG in continuing to meet its obligations, mitigate broader disruptions and at the same time protect the taxpayers."
Dramatic end, high stakes
The firm's options grew more limited as the day wore on. Its already-battered share price fell another 21% with more than 1 billion shares trading hands, and plummeted another 46% in after-hours trading.
At one point Tuesday morning, shares fell more than 70% - a day after losing 61% of their value.
The company, which did not return calls for comment and made no public statements about the deal, was scrambling to raise capital to stay afloat after being hit with credit rating agencies downgrades that is forcing it to come up with billions of dollars in additional collateral fast.
New York State officials, who regulate the insurance titan, had urged the federal government to rescue AIG. The state attempted to help AIG on Monday by allowing it to tap into $20 billion in assets from its subsidiaries if the company could comes up with a comprehensive plan to get the much-needed capital, said a state Insurance Department spokesman.
Pleased with the federal government's response, New York Gov. David Paterson said Tuesday night: "Policy holders will be protected. Jobs will be saved. Business will continue."
The funding became ever more crucial as the insurer was hit Monday night by a series of credit rating downgrades. The cuts meant AIG (AIG, Fortune 500) could be forced to post more than $13 billion in additional collateral.
Late Monday night, Moody's Investors Service and Standard & Poor's Ratings Services each said they had lowered their ratings. A few hours earlier, Fitch Rating had also downgraded AIG, saying the company's ability to raise cash is "extremely limited" because of its plummeting stock price, widening yields on its debt, and difficult capital market conditions.
The downgrade could force AIG to post $13.3 billion of collateral, Fitch said in a statement. Also, the moves would make it more expensive for AIG to issue debt and harder for it to regain the confidence of investors.
All the while, analysts urged the company to unveil its restructuring plan.
"Management needs to address investor concerns now before the market sell-off becomes a self-fulfilling prophecy," Rob Haines, analyst at CreditSights, said Tuesday.
Global ripples if firm were to fail
The failure of AIG could have caused unprecedented global ripple effects, said Robert Bolton, managing director at Mendon Capital Advisors Corp. AIG is a major player in the market for credit default swaps, which are insurance-like contracts that guarantee against a company defaulting on its debt. Also, it is a huge provider of life insurance, property and casualty insurance and annuities.
"If AIG fails and can't make good on its obligations, forget it," Bolton said. "It's as big a wave as you're going to see."
AIG has had a very tough year.
Rocked by the subprime crisis, the company has lost more than $18 billion in the past nine months and has seen its stock price fall more than 91% so far this year. It already raised $20 billion in fresh capital earlier this year.
Its troubles stem from its sales of credit default swaps and from its subprime mortgage-backed securities holdings.
AIG has written down the value of the credit default swaps by $14.7 billion, pretax, in the first two quarters of this year, and has had to write down the value of its mortgage-backed securities as the housing market soured.
The insurer could be forced to immediately come up with $18 billion to support its credit swap business if its ratings fall by as little as one notch, wrote John Hall, an analyst at Wachovia, on Monday.
This year's results have also included $12.2 billion in pretax writedowns, primarily because of "severe, rapid declines" in certain mortgage-backed securities and other investments.
The company brought in new management to try to turn the company around. In June, the company tossed out its chief executive, Martin Sullivan, and named AIG chairman Robert Willumstad, who joined AIG in 2006 after serving as president and chief operating officer of Citigroup (C, Fortune 500), in his place.
hno: Fuck we say we have a truly capitalist society but bullshit!
good lord, there is a fool born every minute
they have 25 trillion in credit default swaps that are worth a mere fraction of that....they are insolvent
the 85 billion loan will not be paid back and the "fed" will have to monetize it....IE "print" the mone.... down the road when the attention is off of it and the public is busy with their american idol
we will all pay for it in the form of an "inflation tax"
How is it good for all of us. It chasing semi-good money noticed I said semi-good behind bad money. Printing all the money you can will not fix the problem. Who's gonna bailout the workers who lost a grip in their 401k, stock options and retirement loot? Fuck if they're gonna use our hard earned dollars at least look out for the little man first. Fuck this corporate welfare shit. Is this truly capitalism?????
The credit default swaps are toxic and beyond worthless. So I am a sucker for understanding AIG has more to it than what you see on CNBC? I am talking about the core insurance business which on it's own is a valuable company. AIG Commercial Insurance (AIGCI) and dozens of sister companies remain viable entities.
Are you suggesting thousands of employees (the little guys) be abandoned due to the sins of AIG Financial Products?
AIGCI has not loaned money or pledged assets to its parent.
AIGCI companies, which include the Lexington Insurance Company, National Union and American Home Assurance Company, remain well-capitalized with statutory surplus of $26.7 billion and invested assets exceeding $70 billion
AIGCI has ample resources to underwrite business and to pay the claims of our policyholders. We continue to pay $73 million in claims every single day.
AIGCI's statutory surplus has grown over 50% since 2005 to $26.7 billion, exceeding the total shareholders' equity of all domestic commercial insurance holding companies.
AIGCI's Net Written Premium to Surplus Ratio, a key indicator of the amount of
leverage of a property casualty organization is <1.0 with total NWP of $12.7 billion in the first half of 2008 compared to policy holder surplus of $26.7 billion.
The Commerical Insurance unit alone is probably a $15-20 stock and that does not include the life divisions or the China operations.
Allowing AIG to collapse without an organized and orderly unwinding of assets would impact the global economy far more than all of the previous recent company failures combined.
Is it pure capitalism? Absolutely not. Show me pure capitalism. We don't have that in America. We have never had it in my lifetime.
If the Fed had not set up a savior for Bear Stearns and Freddie/Fannie, I would be more prone to let AIG suffer the consequences for their poor investment decisions. However, you can't bail out corrupt mortgage operations and allow the parts of the holding company that have viable products to be destroyed based on mark to market accounting standards.
What would have happened to the Markets tomorrow and in the coming months if AIG wasn't taken over?
Are you suggesting thousands of employees (the little guys) be abandoned due to the sins of AIG Financial Products?
AIGCI has not loaned money or pledged assets to its parent.
AIGCI companies, which include the Lexington Insurance Company, National Union and American Home Assurance Company, remain well-capitalized with statutory surplus of $26.7 billion and invested assets exceeding $70 billion
AIGCI has ample resources to underwrite business and to pay the claims of our policyholders. We continue to pay $73 million in claims every single day.
AIGCI's statutory surplus has grown over 50% since 2005 to $26.7 billion, exceeding the total shareholders' equity of all domestic commercial insurance holding companies.
AIGCI's Net Written Premium to Surplus Ratio, a key indicator of the amount of
leverage of a property casualty organization is <1.0 with total NWP of $12.7 billion in the first half of 2008 compared to policy holder surplus of $26.7 billion.
The Commerical Insurance unit alone is probably a $15-20 stock and that does not include the life divisions or the China operations.
Allowing AIG to collapse without an organized and orderly unwinding of assets would impact the global economy far more than all of the previous recent company failures combined.
Is it pure capitalism? Absolutely not. Show me pure capitalism. We don't have that in America. We have never had it in my lifetime.
If the Fed had not set up a savior for Bear Stearns and Freddie/Fannie, I would be more prone to let AIG suffer the consequences for their poor investment decisions. However, you can't bail out corrupt mortgage operations and allow the parts of the holding company that have viable products to be destroyed based on mark to market accounting standards.
What would have happened to the Markets tomorrow and in the coming months if AIG wasn't taken over?
this is a complicated thing but basically in the short term the company is insolvent why ?
they insured bond debt that has blown out way beyond any pricing model, mortgage backed securities they hold are worth roughly 5% of face value
in the long run if some of these values improve and the bond spreads retreat then the company becomes viable.
the problem is they dont have enough assets to secure cash in the short run from private sector (as above) only the govt could take on the toxic waste.
I cant give an opening number because they have undertaken a firesale to avoid a bankruptcy filing this morning.
they insured bond debt that has blown out way beyond any pricing model, mortgage backed securities they hold are worth roughly 5% of face value
in the long run if some of these values improve and the bond spreads retreat then the company becomes viable.
the problem is they dont have enough assets to secure cash in the short run from private sector (as above) only the govt could take on the toxic waste.
I cant give an opening number because they have undertaken a firesale to avoid a bankruptcy filing this morning.
