AIG uses up $90 billion of $123 billion bailout, may require more

24 October 2008

Battered insurance giant American International Group (AIG) may have received one of the biggest official assistance ever in the form of a $122.8 billion bailout, but according to the firm's recently appointed CEO Edward Liddy, the amount ''may not be enough'' to rescue it.

In fact, AIG has already used $90.3 billion of a the government credit line since it was bailed out last month, an amount exceeding the size of the original loan meant to save the insurer.( See: Fed pumps another $37.8 billion in AIG)

Liddy, in a television interview on Wednesday, said that whether it would be enough was "very much a function of two things: "One, our ability to stop the bleeding that we have in the financial products areas ... Also, what happens to the capital markets…To the extent they continue to go down and we have to keep posting collateral, as it's called in the vernacular of the industry, it's possible it may not be enough.''

Liddy's latest statement is quite in contrast to what he had said in the recent past. On 18 September he told employees that the original $85 billion loan was ''a really big number, I think that's enough.'' However, in a 3 October conference call with analysts, he said that he didn't want to state the company would ''never'' need more.

On Wednesday he said the crux of the problem was declines in the market value of its credit default swaps, requiring it to post more and more collateral. He stressed that AIG was working to rid itself of thorny liabilities that drove $25 billion in losses over the past three quarters, and had shut down the financial products unit that was the source of the losses.

Liddy, the former Allstate Corp. CEO appointed by the government to run AIG last month, is selling businesses including US life insurance, plane leasing and consumer finance to repay the loan. He named Paula Rosput Reynolds yesterday to lead the restructuring six months after she arranged the $6.2 billion sale of Safeco Corp., AIG said.