AIG bailed out
Posted on September 16th, 2008 by bile Tags: AIG, American International Group Inc., Anton Schutz, bailout, Ben Bernanke, Congress, Connecticut, David Ader, Fannie Mae, Federal Reserve System, Freddie Mac, Greenwich, Henry Paulson, Lehman Brothers, Mendon Capital, New York, RBS Greenwich Capital, Reuters, Rochester, taxation, The New York TimesAn $85 billion government rescue of insurer American International Group Inc looked increasingly likely on Tuesday to stave off a bankruptcy that would have thrown world markets back into turmoil.
The Federal Reserve will extend AIG $85 billion in exchange for a nearly 80 percent stake to bail out the troubled insurance giant, a person briefed on the matter said.
The deal would avoid the biggest corporate bankruptcy ever and follows a government bailout of mortgage lenders Freddie Mac and Fannie Mae just over a week ago.
Then AIG shares, which had sunk 21 percent in regular trading, fell as much as 48 percent in after-hours dealings after reports of a rescue that could wipe out shareholders.
The New York Times, which had reported that AIG could file as soon as Wednesday for bankruptcy protection, later reported the deal with the Fed.
“This would mean another shareholder wipeout,” said David Ader, head of government bond strategy at RBS Greenwich Capital in Greenwich, Connecticut.
Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson were briefing members of Congress on the deal on Tuesday evening, a Treasury official told Reuters.
“They’re too big to fail. AIG touches too many people and too many companies globally, and it would be much more of a disorderly event if it went bankrupt than it was with Lehman,” said Anton Schutz, president of Mendon Capital in Rochester, New York.
Of course they did. The government goes back on it’s claim, tax payers get it in the ass and the economic problems will continue that much longer.
I bet Lehman Bros. is a bit pissed.
UPDATE:
A bit more info over at CNN:
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.”
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 of dividends 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.
Two years ain’t no bridge loan.
3 Responses to “AIG bailed out”
Leave a Reply
You must be logged in to post a comment.
September 16th, 2008 at 10:03 pm
I thought the point of insurance was that customers pay so they may compensated in the event of a catastrophic event… How the roles have reversed.
Edit: 11.3% Ouch.
September 17th, 2008 at 8:58 am
I heard today morning on CNBC that there might be possible recriminations brought up against JP Morgan. With the Fed initially leaning towards AIG getting private loans from other companies, there was some discussion with JP Morgan. JP Morgan gets AIG to show their books to go over the numbers. Apparently most people at AIG were clueless as to how bad things really were. In the end JP Morgan essentially “sells AIG out to the Fed”. Supposedly the reason private interests didn’t step in was because no one could figure how much was needed but somehow the Fed and JP Morgan arrive at $85 billion. It’s also important to note the role of JP Morgan in the creation of the Federal Reserve.
September 17th, 2008 at 9:20 am
And some of the players in these bailouts are on the NY Federal Reserve board as I understand.
As for not knowing what they needed… it’s very likely. These investment firms are almost unknowably complex. Apparently MS didn’t pick up Merrill for that reason. There just wasn’t enough time to figure out what they’d be getting into.