WASHINGTON -(Dow Jones)- The U.S. government and American International Group Inc. (AIG) have revised the terms of the insurance giant's September bailout, boosting the size of the package to $150 billion and including the Treasury Department paying $40 billion for another 2% stake in the company.
The package appears to be the largest the U.S. government has ever provided to a single company, according to senior Federal Reserve officials.
Meanwhile, the company posted a $24.47 billion net loss for the third quarter following huge investment losses and write-downs.
Shares of AIG were up 14% at $2.40 apiece recently, as investors focused on the potential benefit of the bailout to them.
The investment, from the Treasury's $700 billion Troubled Asset Relief Program, is larger than what any bank is getting from the up to $250 billion of capital being injected into that sector from the purchase of preferred stock and warrants of various companies.
In addition, up to $70 billion in exposure to collateralized debt obligations will be purchased. AIG insured many billions of CDOs, securities that combined various types of loans, of which sliced-and-diced portions were sold. The CDOs' tumbling values were the source of AIG's woes and pushed the company to the brink of bankruptcy.
The Federal Reserve said Monday it would lend up to $30 billion to a facility to purchase CDOs insured by AIG through credit default swap contracts. AIG would lend $5 billion to the facility.
Senior Federal Reserve officials Monday said the new federal aid package is the ideal way they would have wanted to help the ailing firm. However, in September, when they initially agreed to throw AIG an $85 billion lifeline, the new $700 billion bailout program had not been enacted. Injecting capital into AIG, which the Treasury is authorized to do under the new government bailout program, is a much better way to stabilize a faltering company than just providing a loan, the Fed officials said.
Meanwhile, Treasury officials said a representative from President-elect Barack Obama's team was briefed about the restructuring Sunday night.
AIG Chairman and Chief Executive Edward M. Liddy said, "Today's actions send a strong signal to our policyholders, business partners and counterparties that AIG is on the road to recovery. Our comprehensive plan addresses the liquidity issues that threatened AIG, and gives us the financial flexibility to complete our restructuring process successfully for the benefit of all of our constituencies." Analysts called the program good news for AIG equity and bond holders. "We believe that it will help to restore confidence in AIG's global franchise," said CreditSights Inc. analyst Rob Haines on Monday.
The terms of the federal loan extended to AIG has also been substantially eased, falling to 3% above the London interbank offered rate, a common short- term benchmark, from 8.5% plus Libor.
The new package is a tacit acknowledgment that the original $85 billion rescue in September, combined with an additional $37.8 billion made available to the company last month, together haven't come close to stabilizing AIG. The giant insurer employs more than 100,000 people worldwide and touches business and finance at innumerable points throughout the global economy.
The loan's term also has been extended to five years from two.
AIG laid out a far-reaching plan in early October for selling off assets to pay back the first loan the government extended, which was for up to $85 billion. But the turmoil in the markets has made it difficult for potential buyers to secure funding.
The revised structure is designed to improve both AIG's ability to sell assets for a decent price and the taxpayer's ability to recoup the money that has been pumped into the insurer. It also transfers to the government many of the risks once absorbed by AIG, potentially exposing the government to billions of dollars in future losses.
Meanwhile, AIG reported a third-quarter net loss of $24.47 billion, or $9.05 a share, compared with year-earlier net income of $3.09 billion, or $1.19 a share. Excluding capital losses, the red ink amounted to $9.24 billion, or $3.42 a share.
The latest results included $7.05 billion in unrealized losses at AIG Financial Products, source of the credit-default swaps and $18.31 billion in investment write-downs, of which $11.7 billion was from AIG's securities-lending program. That effort, which has caused major problems for AIG as the stock market swooned in recent months, is being winded down.
Operationally, AIG's general-insurance business swung to a loss amid $1.39 billion in catastrophe losses, primarily related to hurricanes Gustav and Ike; falling investment income; and increased losses at United Guaranty. General- insurance net premiums dipped 0.8% to $11.73 billion.
Life-insurance and retirement-services profits were more than halved by weak partnership and mutual-fund results.
-By Kevin Kingsbury, Dow Jones Newswires; 201-938-2136; kevin.kingsbury@ dowjones.com
(Lavonne Kuykendall contributed to this report.)
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The package appears to be the largest the U.S. government has ever provided to a single company, according to senior Federal Reserve officials.
Meanwhile, the company posted a $24.47 billion net loss for the third quarter following huge investment losses and write-downs.
Shares of AIG were up 14% at $2.40 apiece recently, as investors focused on the potential benefit of the bailout to them.
The investment, from the Treasury's $700 billion Troubled Asset Relief Program, is larger than what any bank is getting from the up to $250 billion of capital being injected into that sector from the purchase of preferred stock and warrants of various companies.
In addition, up to $70 billion in exposure to collateralized debt obligations will be purchased. AIG insured many billions of CDOs, securities that combined various types of loans, of which sliced-and-diced portions were sold. The CDOs' tumbling values were the source of AIG's woes and pushed the company to the brink of bankruptcy.
The Federal Reserve said Monday it would lend up to $30 billion to a facility to purchase CDOs insured by AIG through credit default swap contracts. AIG would lend $5 billion to the facility.
Senior Federal Reserve officials Monday said the new federal aid package is the ideal way they would have wanted to help the ailing firm. However, in September, when they initially agreed to throw AIG an $85 billion lifeline, the new $700 billion bailout program had not been enacted. Injecting capital into AIG, which the Treasury is authorized to do under the new government bailout program, is a much better way to stabilize a faltering company than just providing a loan, the Fed officials said.
Meanwhile, Treasury officials said a representative from President-elect Barack Obama's team was briefed about the restructuring Sunday night.
AIG Chairman and Chief Executive Edward M. Liddy said, "Today's actions send a strong signal to our policyholders, business partners and counterparties that AIG is on the road to recovery. Our comprehensive plan addresses the liquidity issues that threatened AIG, and gives us the financial flexibility to complete our restructuring process successfully for the benefit of all of our constituencies." Analysts called the program good news for AIG equity and bond holders. "We believe that it will help to restore confidence in AIG's global franchise," said CreditSights Inc. analyst Rob Haines on Monday.
The terms of the federal loan extended to AIG has also been substantially eased, falling to 3% above the London interbank offered rate, a common short- term benchmark, from 8.5% plus Libor.
The new package is a tacit acknowledgment that the original $85 billion rescue in September, combined with an additional $37.8 billion made available to the company last month, together haven't come close to stabilizing AIG. The giant insurer employs more than 100,000 people worldwide and touches business and finance at innumerable points throughout the global economy.
The loan's term also has been extended to five years from two.
AIG laid out a far-reaching plan in early October for selling off assets to pay back the first loan the government extended, which was for up to $85 billion. But the turmoil in the markets has made it difficult for potential buyers to secure funding.
The revised structure is designed to improve both AIG's ability to sell assets for a decent price and the taxpayer's ability to recoup the money that has been pumped into the insurer. It also transfers to the government many of the risks once absorbed by AIG, potentially exposing the government to billions of dollars in future losses.
Meanwhile, AIG reported a third-quarter net loss of $24.47 billion, or $9.05 a share, compared with year-earlier net income of $3.09 billion, or $1.19 a share. Excluding capital losses, the red ink amounted to $9.24 billion, or $3.42 a share.
The latest results included $7.05 billion in unrealized losses at AIG Financial Products, source of the credit-default swaps and $18.31 billion in investment write-downs, of which $11.7 billion was from AIG's securities-lending program. That effort, which has caused major problems for AIG as the stock market swooned in recent months, is being winded down.
Operationally, AIG's general-insurance business swung to a loss amid $1.39 billion in catastrophe losses, primarily related to hurricanes Gustav and Ike; falling investment income; and increased losses at United Guaranty. General- insurance net premiums dipped 0.8% to $11.73 billion.
Life-insurance and retirement-services profits were more than halved by weak partnership and mutual-fund results.
-By Kevin Kingsbury, Dow Jones Newswires; 201-938-2136; kevin.kingsbury@ dowjones.com
(Lavonne Kuykendall contributed to this report.)
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