Video: AIG to report huge loss

updated 2/24/2009 8:58:17 AM ET 2009-02-24T13:58:17

Beleaguered insurer American International Group Inc. is looking to alter its $150 billion government loan while it continues to look for buyers for some of its operations, according to published reports.

Under a proposed plan, the government’s primary loan to AIG totaling $60 billion would be repaid with a combination of debt, equity, cash and stakes in operating businesses, according to a report in The Wall Street Journal. The Journal, citing anonymous sources familiar with the discussions, said the sides have been working to revamp the loan since December.

The Federal Reserve Bank of New York, which is handling the government loan, declined to comment Tuesday on the report.

On Monday, AIG said it was working with the Federal Reserve Bank of New York on potential alternatives for addressing AIG’s financial problems. The insurer also said it plans to provide a complete update on the government support when it releases fourth-quarter results, which are expected in the coming week.

In November, the U.S. government restructured previous loans provided to AIG, giving the company about $150 billion in total as part of a rescue package to help the company remain in business amid the worsening credit crisis. That package replaced earlier loans after it became apparent the insurer needed more funds. It included a $40 billion cash infusion from the $700 billion financial bailout the government announced late last year.

On the brink of failure in September, AIG was bailed out when the government offered it an $85 billion loan during the ongoing credit crisis that saw Lehman Brothers Holdings Inc. file for bankruptcy protection and Merrill Lynch & Co. get sold to Bank of America Corp. Less than a month later, the insurance giant received additional loans from the Federal Reserve, followed by the $150 billion package in November.

The loans came with the government taking about an 80 percent stake in AIG.

Problems at AIG did not come from its traditional insurance operations, but instead from its financial services units, and primarily its business insuring mortgage-backed securities and other risky debt against default.

AIG has been in the process of selling assets in an effort to raise more cash to help cover the government loans. Its latest sales might include a deal for its life insurance unit, called American Life Insurance Co. AIG is entertaining bids from MetLife Inc. and Axa SA for American Life, which operates in more than 50 countries, according to a Bloomberg report.

MetLife made a preliminary offer of $11.2 billion for American Life Insurance Co., but the price might drop to $8 billion because of declining financial conditions at the unit, according to the report. Terms of the Axa bid were not disclosed, but the offer excludes the division’s largest market, Japan, according to the report that cited anonymous sources.

AIG did not immediately return messages seeking comment Tuesday on the potential sale of its life insurance unit or about details of potential changes to its government loan.

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The sale of the life insurance operations would help AIG as it tries to repay its loans from the government.

The loan alterations being discussed with the government could include the U.S. taking control of some of AIG’s assets instead of waiting for them to be sold off to repay the loans in cash, according to the Journal report.

AIG and the government are working on a revised plan in hopes of avoiding a potentially costly ratings downgrade for AIG, according to the Journal. If AIG’s credit ratings were to fall, it would trigger massive payments to its trading partners, putting its fiscal position in an even more precarious position. A ratings downgrade might occur if AIG posts a fourth-quarter loss of $60 billion as some have predicted.

The initial problems at AIG in September were due in part to a ratings downgrade that triggered similar payments.

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