U.S. Government Gives Another $30 Billion to AIG

Troubled insurance company needs more help

For the third time, insurance company American International Group has turned to the government for help. The feds threw the company an $85 billion lifeline more than a year ago. After TARP fund started being handed out, the financing for the company was modified, and the total was brought to about $150 billion.

However, it appears that wasn’t enough. Now the company will receive an additional $30 billion from the TARP funds.

Why the bailout?

AIG signed a new bailout deal with the government as it faced its biggest quarterly loss in history. AIG is expected to report a $60 billion loss for last quarter on Monday.  Without this bailout the company could face a downgrade in its credit rating, which would further damage the faltering company.

AIG guarantees about $300 billion of asset-backed securities and other debt. Analysts agree that allowing the collapse of the company would have consequences for the global financial system.

“The counterparties on most of the book are (European) banks that would be hammered if the U.S. walked away. Hopefully, the third bailout will be the charm,” said Robert Haines, senior insurance analyst at CreditSights.

The new deal

The most recent bailout package modifies the terms on the total funding that the company has received from the government. The new terms are more lenient in regard to a government investment in its preferred shares. It also includes a lower interest rate on a government credit line.

The interest rate on AIG’s government credit line will be decreased to match the three-month London Interbank Offered Rate, which is about 1.26 percent. This is expected to save AIG about $1 billion a year. ... click here to read the rest of the article titled "U.S. Government Gives Another $30 Billion to AIG"