US pumps another US$40b into embattled insurer AIG

Source: Agencies  |   2008-11-11  |     NEWSPAPER EDITION

THE United States government yesterday provided new financial assistance to troubled insurance giant American International Group, including pouring US$40 billion into the company in return for partial ownership.

The action was announced jointly by the Federal Reserve and the Treasury Department. The moves will boost aid to the company to around US$150 billion.

The US$40-billion infusion comes from the recently enacted US$700-billion 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 US$24.47 billion, or US$9.05 a share, after a profit of US$3.09 billion, or US$1.19 a share, a year ago. Results included pre-tax losses of US$18.31 billion tied to the declining value of AIG's portfolio.

As part of the new arrangement, the Federal Reserve is reducing a US$85-billion loan it had made available to AIG to US$60 billion. The Fed also is replacing a separate US$37.8-billion loan to the insurance company with a US$52-billion 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 US$700-billion 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 US$250 billion into banks in return for partial ownership. The original notion behind the bailout was to help financial institutions lend money more freely again, one of the main reasons the US economy is in danger of getting stuck in a recession.

Until yesterday, all of AIG's bailout relief was coming from the Fed.