The U.S. government is boosting its investment in embattled insurer
The
Those steps will be coupled with changes to the Fed's existing $60 billion resolving credit facility for AIG. The Fed and the
AIG on Wednesday will issue new convertible preferred shares worth a 77.9% stake in the company as part of the overhaul of their government rescue. The company will also now have to comply with much more stringent executive compensation rules put in place by Congress as part of the recently passed economic stimulus legislation.
The Fed and Treasury said the steps are meant to provide "tangible evidence" of the government's commitment to an orderly restructuring of AIG, and that the cost of not helping the company was judged to be too high.
"Given the systemic risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high," the Treasury and Fed said in a joint statement.
They noted that AIG, through the various financial contracts it has backed, is a "significant counterparty to a number of major financial institutions." That fact has all but required the government to backstop the firm, as a collapse of AIG would ripple through the market and affect the other major financial firms the government has poured hundreds of billions of dollar into in recent months.
"The company continues to face significant challenges, driven by the rapid deterioration in certain financial markets in the last two months of the year and continued turbulence in the markets generally," the Treasury and Fed said.
Rating agencies reacted to the government's announcement by confirming a number of AIG's current ratings, an important step that will prevent the company from incurring additional losses because of a downgrade.
The moves by the U.S. government are aimed at keeping AIG healthy enough so the firm can complete a restructuring and start to repay taxpayers for the assistance the firm has received. AIG's funding is already well above the $50 billion that
AIG Chairman and CEO Edward Liddy said in a release of the company's fourth-quarter results that the success of AIG's restructuring plan "centers on ensuring that the unique businesses that make up AIG can thrive on their own. He also cited the importance of "repaying our obligation to the U.S. government."
Meanwhile, AIG posted a net loss of $61.7 billion, or $22.95 a share, compared with a year-earlier net loss of $5.3 billion, or $2.08 a share. The latest results included the restructuring charges and writedowns.
The loss is the biggest quarterly loss in history, breaking the record set by
AIG's shares were recently up 9.5% at 46 cents in premarket trading. The stock is off 73% so far this year and 99% in the last 12 months.
The company said it will form a general-insurance holding company including its commercial insurance group, foreign general unit and other property/casualty operations, to be called AIU Holdings Inc. AIU will have its own board and management and its creation will help AIG prepare to possibly sell a minority stake in the business.
AIG also said it is considering combining its domestic life and retirement businesses as it looks to boost competitiveness. The combined units would have assets of $246.8 billion.
Liddy said the company has made "meaningful progress" in addressing its liquidity issues, but it is taking more steps to preserve the value of its business amid the economic and capital-market turmoil.