Fearing further tremors in the global financial market, the US government has once again stepped in to bail out the world's biggest insurer for the fourth time with an infusion of $30 billion, in the backdrop of AIG's biggest quarterly loss in US corporate history, which posted a historic $61.7-billion quarterly loss in the third quarter alone (See: AIG may report largest ever quarterly loss in corporate history)
The government decided to give it additional funding, as it felt that the risk would be far greater if it allowed AIG to collapse.
In a joint statement, the Federal Reserve and the Treasury said that AIG continues to face significant challenges and "The additional resources will help stabilise the company, and in doing so help to stabilise the financial system," it said.
The US Federal Reserve will give AIG, $30 billion in cash from the Troubled Assets Relief Program while it will receive non-cumulative preferred stock.
The Federal Reserve, will also reduce the insurer's $60 billion revolving credit facility in exchange for preferred interests in two special purpose vehicles created to hold all of the outstanding common stock of AIG's Asian subsidiaries, American International Assurance and the American Life Insurance Co.
By doing so, AIG will not pay the government back $38 billion in cash with interest, which it has used from a Federal Reserve credit line, but will repay it with equity stakes in the two Asian subsidiaries.
The present loan also comes with low interest as the government wants to help the insurer to become viable in the long term.
Of the $62 billion loss in the last quarter, AIG has lost approximately $2 billion in cash while the rest is a result of write-downs on the value of the company's assets while it's full-year loss was $99.3 billion for 2008, mainly due to its restructuring charges and continued turmoil in the credit market.
The $62-billion third quarter loss exceeds the Time Warner's $54-billion single-quarter loss in 2002 and dwarf the $24.5-billion loss AIG posted in the third quarter, when the government increased its rescue package for the insurer to about $150 billion.
The US government already holds nearly 80 per cent stake in AIG by infusing $150 billion on four different occasions starting from September and with this additional f $30 billion bailout, adds up to $180 billion, which is by far the biggest bailout that any US company has received in the present economic crisis.
The government stake in the Asian unit of AIG, the American International Assurance will draw flak from all quarters as the company had tried hiking the unit recently without success.
AIG was first rescued in September after bad mortgage bets left it on the verge of collapse. The government stepped in with $85 billion in bailout financing, as the credit crisis peaked with Lehman Brothers Holdings Inc filing for bankruptcy and Merrill Lynch agreeing to be bought by Bank of America Corp. (See: $85-billion bailout for AIG)
The rescue swelled in November as AIG posted its then largest ever loss, hurt by write-downs on assets linked to sub-prime mortgages and capital losses. The Federal Reserve and US Treasury stepped in with even more money to buy mortgage assets that had left AIG deeply in the red, and eased the terms of its loan repayment (See:Fed pumps another $37.8 billion in AIG)
AIG has said it plans to sell all assets except its US property and casualty business, foreign general insurance, and an ownership interest in some foreign life operations, as it looks to raise money to pay back the government (AIG may sell over 15 businesses to repay $85 billion Fed loan).
The company reportedly received bids from MetLife Inc. and Axa SA for its American Life Insurance Co. (Alico) unit, which does business in more than 50 countries. New York-based MetLife made a preliminary offer of as much as $11.2 billion, the people said. A rival approach from Axa in Paris excludes operations in Japan, Alico's biggest.
Although AIG has announced some sales, it is trying to sell assets at a time when buyers are often dealing with their own problems and credit for acquisitions is scarce. The insurer's ongoing troubles are likely making things harder. (See: Bank of Montreal acquires AIG's Canadian business for $375 million / AIG offloads private banking arm for $254 million)