Charlotte, North Carolina - Struggling insurer American International Group Inc will receive up to $30bn in additional federal assistance in the fourth government rescue of the company, people familiar with the matter told The Associated Press on Sunday.
The new infusion is intended to prop up AIG - once the world's largest insurer - as it is expected to announce $60bn in quarterly losses early on Monday, a person said on the condition of anonymity because the discussions are still ongoing.
The company, which is considered too large to be allowed to fail, previously received about $150bn in loans from the government, which currently holds an 80% stake in the company.
Under the new deal, the US Treasury and the Federal Reserve would provide about $30bn in fresh capital to AIG from the government's Troubled Assets Relief Program, or Tarp. The money would be provided as a standby line of equity that AIG could tap as its losses mount, the person said.
AIG has already received $40bn from Tarp.
The new plan also calls for the Federal Reserve to take stakes in two international units, the person said.
Instead of paying back $38bn in cash with interest that it has used from a Federal Reserve credit line, AIG now will repay that amount with equity stakes in Asia-based American International Assurance Co and American Life Insurance Co, which operates in 50 countries.
The $20bn to $25bn remaining on the Federal Reserve credit line will be available for borrowing, the person said.
In order to strengthen the company, AIG also plans to combine its US and foreign property-casualty insurance operations into a new unit, with a new name and separate management, the person said. About 20% of the property-casualty business would be taken public.
To further reduce its debt, AIG will turn $5bn to $10bn worth of debt into new securities backed by life insurance assets.
Can't sell assets
The decision to approve a third revision of the AIG bailout is a continued bet by the federal government that there would be even greater risk to letting AIG fail, a person familiar with the Treasury's decision told The Associated Press on Sunday.
Federal officials feared that a bankruptcy of AIG could be disastrous for the global economy, which is in worse shape than it was six months ago, the person said, requesting not to be named because the talks are ongoing. Talk of the new rescue package has been going on for several weeks, as the Treasury gained insight of AIG's quarterly performance, the person added.
AIG spokesperson Nick Ashooh declined to comment on the rescue package. The Federal Reserve Bank of New York, which is handling the government loan, did not return requests for comment on Sunday evening. Treasury Department spokesperson Isaac Baker also declined to comment.
The company's board met on Sunday to vote on the revised bailout plan.
Major credit rating agencies have already signed off on the deal, according to media reports. Without the support of the credit rating agencies, AIG would have faced crippling cuts to its ratings.
AIG has been forced to seek more help in part because of the ongoing recession and its falling stock price, now well under $1. Among its biggest problems: It can't sell assets to pay back government loans because the credit crisis is preventing would-be buyers from getting financing to complete such deals.
As of February 13, AIG had sold interests in nine businesses.
In November, the US government restructured previous loans provided to AIG, giving the company about $150bn in total as part of a rescue package to help the insurer remain in business amid the worsening credit crisis. That package replaced earlier loans, including the original $85bn lent in September, after it became apparent the insurer needed more funds.
Problems at AIG did not come from its traditional insurance operations, but instead from its financial services units, and primarily its business insuring mortgage-backed securities and other risky debt against default.
- AP