N.Y. Will Let AIG Borrow $20 Billion From Its Own Subsidiaries
Monday, September 15, 2008; 6:49 PM
Scrambling to prevent another meltdown in the financial system, government officials in New York and Washington were trying to buy insurer AIG more time today and line up private loans of as much as $75 billion to rescue the troubled giant.
New York's governor said his state will allow AIG, the nation's largest insurer, to use $20 billion from its own insurance subsidiaries to ease a financial crunch.
By posting the assets as collateral, AIG can borrow money to run its day-to-day operations, Gov. David A. Paterson (D) said at a news conference. The move required special dispensation from the state regulator responsible for protecting the stability of AIG subsidiaries in New York and their policyholders.
J.P. Morgan, which is serving as AIG's financial adviser, was seeking support for a credit line of $70 billion to $75 billion that would be syndicated to multiple lenders, according to a source familiar with the discussions. That could spread the risk among institutions that can do something AIG can't: borrow from the Federal Reserve.
The Fed has maintained that it will not offer AIG a bridge loan or other direct injection from the government, according to sources familiar with the conversations. Rather, it was pursuing a privately funded solution.
The Fed asked Goldman Sachs to explore ways to help AIG, the source familiar with the discussions said. The source spoke on the condition of anonymity because the talks are private.
AIG has $1 trillion of assets and serves clients in 130 countries. Businesses and individuals rely on it for life insurance, retirement annuities, and coverage against all manner of calamities, from financial to natural disasters.
The collapse of subprime loans and other mortgages threatened to hobble the company, which was heavily involved in the business of issuing complex insurance contracts to investors in securities backed by mortgages. If AIG faltered, it could weaken other players in the financial system.
Paterson spoke as Lehman Brothers, a major New York investment bank, sought bankruptcy protection.
"[T]here are other institutions that are just short of realizing the same type of situation," Paterson said.
AIG's stock closed today at $4.76, down 60.8 percent on the day and far below its high during the past 52 weeks of $70.13.
New York's move should give AIG a few weeks to raise capital from outside sources, said Sean Egan, founder of the credit rating agency Egan-Jones.