Feds Seize AIG

New York — The Federal Reserve Board on Tuesday, with the full support of the Treasury Department, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG) under section 13(3) of the Federal Reserve Act.

The U.S. government will receive a 79.9% equity interest in AIG, and has the right to veto the payment of dividends to common and preferred shareholders. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets.

The Fed says that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility, and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance. The loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy, the Fed says.

The AIG facility has a 24-month term and AIG will be permitted to draw up to $85 billion under the facility. The assets of AIG, and of its primary non-regulated subsidiaries, collateralize the loan. These assets include the stock of substantially all of the regulated subsidiaries.

Source: The Federal Reserve Board