The U.S. government announced a restructuring of a bailout plan for the troubled insurer American International Group Inc. Monday, extending $30 billion in additional aid to the company.
News of the additional funds came as AIG, once the world’s largest insurer, said it lost $61.7 billion in the fourth quarter, the biggest quarterly loss in U.S. corporate history, amid continued financial market turmoil.
The government’s new financial assistance to AIG includes providing the troubled company another $30 billion on an “as needed” basis.
In an interview on NBC’s “Today” show Monday morning, AIG chairman and chief executive Edward Liddy said: “We’re going to be able to pay back the Federal Reserve. The new $30 billion is a stand-by line. It’s not necessarily something that we think we’ll have to draw on right away.”
The Federal Reserve said Monday it will also take stakes in two international units.
Instead of paying back $38 billion in cash with interest that it has used from a Federal Reserve credit line, AIG now will repay that amount with equity stakes in Asia-based American International Assurance Co. and American Life Insurance Co., which operates in 50 countries.
AIG also announced plans to spin off part of its property-casualty business, to be renamed AIU Holdings Inc.
It marked the fourth time the government has stepped in to help AIG. Its initial lifeline came in September. The action was announced jointly early Monday by the Treasury Department and the Federal Reserve.
The new package is designed to enhance the company’s capital and liquidity to facilitate the “orderly completion of the company’s global divestiture program,” the agencies said.
They said the company continues to face “significant challenges” due to the rapid deterioration in certain financial markets in the last two months of the year. “The additional resources will help stabilize the company and in doing so help stabilize the financial system,” the agencies said.
AIG has been forced to seek more help in part because of the ongoing recession and its falling stock price, now well under $1. Among its biggest problems: It can’t sell assets to pay back government loans because the credit crisis is preventing would-be buyers from getting financing to complete such deals.
As of Feb. 13, AIG had sold interests in nine businesses.
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 insurer remain in business amid the worsening credit crisis. That package replaced earlier loans, including the original $85 billion lent in September, after it became apparent the insurer needed more funds.
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.
“Our insurance policy holders, they’re in good shape. They’re secure, they’re protected,” Liddy said in the “Today” show interview. “It’s all the other ancillary businesses that are causing this. And it’s the decline in asset values around the globe.”
New York-based AIG said Monday it lost $22.95 per share in the last three months of 2008. It lost $5.3 billion, or $2.08 per share, in the same quarter a year ago. Revenue fell to negative $23.8 billion, as the company had to reverse gains it recorded from investments in past quarters.
The latest results include $7.2 billion in unrealized losses and credit valuation adjustments at AIG Financial Products, the source of credit-default swaps, and pretax losses of $21.6 billion tied to the declining value of AIG’s investment portfolio.
AIG’s general insurance business swung to a loss on $2.8 billion in net realized capital losses. General insurance net premiums dropped 16.3 percent to $9.2 billion, and net premiums earned fell 5.9 percent to nearly $11 billion.
Adjusted to exclude certain items, operating losses totaled $37.9 billion, or $14.17 per share, versus a loss of $3.2 billion, or $1.25 per share, last year.
The results fell drastically short of estimates. Analysts surveyed by Thomson Reuters, on average, forecast a loss of 37 cents per share on revenue of $24.82 billion. Analysts have been dropping coverage of AIG in recent weeks due to the uncertainty of AIG’s future.
“We have made meaningful progress in addressing liquidity issues related to AIG Financial Products and our securities lending activities and have announced several divestitures,” AIG’s Liddy said. “However, the economy and capital markets remain in turmoil and we are taking additional steps to preserve the value of our businesses and maximize the ultimate proceeds for the benefit of all stakeholders, including taxpayers.”
For the full year, AIG lost $99.3 billion, or $37.84 per share, compared with a proft of $6.2 billion, or $2.39 per share, a year earlier. Total revenue fell 89.9 percent to $11.1 billion from $110.1 billion a year ago.
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