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Washington - The U.S. government on Monday provided new financial assistance to troubled insurance giant American International Group, including pouring $40bn into the company in return for partial ownership.
The action was announced jointly by the Federal Reserve and the Treasury Department. All told, the moves boost aid to the company to around $150bn.
The $40bn infusion comes from the recently enacted $700bn financial bailout package. The government is buying preferred shares of AIG stock, giving it an ownership stake in the company.
The assistance came as the company announced continued financial market turmoil resulted in a large third-quarter loss. It said it lost $24.47bn, or $9.05 per share, after a profit of $3.09bn, or $1.19 per share, a year ago. Results included pre-tax losses of $18.31bn tied to the declining value of AIG's investment portfolio.
As part of the new arrangement, the Federal Reserve is reducing a $85bn loan it had made available to AIG to $60bn. The Fed also is replacing a separate $37.8bn loan to the insurance company with a $52bn aid package.
The government said the actions were needed to "keep the company strong and facilitate its ability to complete its restructuring process successfully."
It marked the first time money from the $700bn bailout package Congress enacted last month has gone to any company other than a bank.
The Treasury Department, which is overseeing the program, has promised to inject $250bn into banks in return for partial ownership. The original notion behind the bailout package was to help financial institutions lend money more freely again, one of the main reasons the U.S. economy is in danger of getting stuck in a long and painful recession.
Until Monday, all of AIG's bailout relief was coming from the Fed.
The Fed, earlier this year, said it would loan a total of $123bn to AIG. The insurance company was later allowed to access another $20.9bn through the Fed's "commercial paper" program. That's where the Fed is buying mounds of companies' short-term debt often used for crucial day-to-day expenses, such as payrolls and supplies.
- AP