New York — The federal government moved swiftly late Tuesday to save
"A disorderly failure of AIG could add to already significant levels of financial market fragility," the Fed said in a prepared statement. The loan gives the U.S. government a 79.9% stake in the company.
The decision comes on the heels of the
In a report on
The 24-month loan is expected to be repaid from the proceeds of the sale of the firm’s assets, said the statement. “The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries, and of its primary non-regulated subsidiaries.”
Further to its statement, the Fed said, "This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner."
Assets that AIG may divest include its majority stake in New York reinsurer
New York Gov. David Paterson, who oversees AIG's main regulator, reported on Tuesday that the insurer had one day to shore up its finances, stressing that a collapse of the New York-based company would be "catastrophic."
Earlier today, officials from the Treasury Department, the
AIG said late Tuesday it won't reduce capital at any of its subsidiaries or tap into Asian operations for liquidity.
The company also stressed in a formal statement that AIG's life insurance, general insurance and retirement services businesses, including its large Asian operations, continue to operate normally, remain adequately capitalized and are capable to meeting obligations to policyholders. AIG shares failed to recover after the statement.
A Treasury spokeswoman referred
When asked whether that meant no more government bailouts of financial institutions, Paulson said: "Don't read it as no more; read it as that it's important, I think, for us to maintain the stability and orderliness of our financial system."
AIG has been stunned by the housing crisis and credit crunch because its derivatives unit sold guarantees on mortgage-related securities known as collateralized debt obligations, or CDOs, using credit-default swaps.
AIG reported a quarterly net loss of more than $5 billion in August as it wrote down these exposures and suffered impairments on some of its mortgage-related investments.
Late Monday,
Sources: The New York Times, MarketWatch, Dow Jones