AIG FUNDING CRISIS:THE US Federal Reserve is considering extending a special "loan package" to insurance giant American International Group (AIG), which is seeking to raise as much as $75 billion (€53 billion) to stay afloat as it grapples with an acute shortage of cash.
The company, whose unit in Dublin controls about 5 per cent of the Irish non-life market, is seeking new capital to stave off a collapse after its credit ratings were cut late on Tuesday.
There was no comment yesterday from the company's Dublin office on the funding difficulties of the parent organisation. The Irish business, a major commercial insurer, has annual premiums in the region of €200 million.
News late yesterday that the Fed may extend a loan package to the company represents a reversal from a position the US central bank held as late as Tuesday. People with knowledge of the talks were "cautiously optimistic" last night, according to sources.
As regulators and company executives held a fresh round of emergency meetings at the New York Federal Reserve amid fears that any collapse of the business would further destabilise the global financial system, the talks took on renewed urgency after a series of sharp credit rating cuts on Monday sent AIG's shares into a further tailspin and its debt traded at highly distressed levels.
Amid increasingly desperate lobbying for US government help, David Paterson, New York's governor, said the beleaguered insurer had "a day" to solve its problems. Stating later that the company was at the centre of a crisis that has "stunned" Wall Street, he said executives at US financial firms "aren't totally aware" of the scope of the market crisis.
Bankers said the company's future now depended on whether the government was prepared to provide a financial lifeline, at least on a temporary basis.
The government has stressed its reluctance to provide any tax-payers money to prop up AIG.
However, one possible option could be for a loan to be made via a third party, such as bank which can access funding from the Federal Reserve. Estimates for the size of the funds needed to ensure liquidity continued to grow. The latest estimates were that it would need some $70 billion to shore up its balance sheet were significantly greater than the $40 billion that was discussed over the weekend.
AIG is the biggest provider of commercial insurance in the US, one of the biggest writers of life assurance there and the biggest provider of fixed annuities, a popular retirement savings product.
It also has enormous global operations.
Bankers involved in discussions said that any plan to try to raise some $70 billion in loans from investors had been scuppered by the credit downgrades and the sharp fall in AIG's shares.
By midday, they were down just over 40 per cent to $2.79.
The company's executives and its advisers were holed up in the offices of the New York Fed in an attempt to at least give AIG more time to unwind its credit default swap positions, the source of many of its recent losses.
People close to the discussions said government help was needed to give AIG time to separate AIG's insurance operation from its troubled portfolios of credit default swaps and investments. (Additional reporting: Bloomberg, Financial Times service)
