By MARY WILLIAMS WALSH and MICHAEL J. de la MERCED

Published: September 15, 2008

Major credit ratings agencies downgraded the American International Group late Monday, worsening its financial health, as Federal Reserve officials and two leading investment banks were in urgent talks to put together a $75 billion line of credit to stave off a crisis at the company.

The credit downgrades are likely to force the company to turn over billions of dollars in collateral to its derivatives trading partners.

Without the financing, which was being arranged by Goldman Sachs and JPMorgan Chase in talks with the Federal Reserve officials, A.I.G. might be forced to declare bankruptcy, according to two people briefed on the situation.

The talks, which began last week and continued through the weekend, added to the sense of agitation in the stock market on Monday, as investors grappled with the implications of the bankruptcy of Lehman Brothers, which, like A.I.G., was a large counterparty to derivatives contracts held by countless financial institutions.

Shares in A.I.G. tumbled more than 60 percent on Monday morning as concerns grew that the firm lacked capital to withstand cuts to its debt rating, which were borne out later in the day. The company’s potential write-offs are mounting and may reach $60 billion to $70 billion, according to two people briefed on the situation.

Most of A.I.G.’s businesses are healthy, but its troubles grew from one unit that dealt in complex debt securities and derivatives and now threatens to drain cash more quickly than the financing package can be assembled.

The day started off with news that A.I.G. had requested a $40 billion bridge loan from the Fed, a request that was rebuffed, and ended with the word that its need had soared to $75 billion. The firm suffered several credit-rating downgrades Monday evening, including cuts by Standard & Poor’s and Moody’s.

The complex discussions, continuing into the night as a deal was sought before United States markets open on Tuesday, involved New York state regulators, federal regulators, private equity firms and Wall Street banks that rely on A.I.G.’s ability to honor its derivatives contracts, as they do with Lehman Brothers.

“It’s not just the failure of one company,” said Julie A. Grandstaff, vice president and managing director of StanCorp Investment Advisers. “It’s the ripple effect of the disappearance of counterparties” that was spurring urgent efforts to bolster A.I.G.

A large counterparty to derivatives contracts has not declared bankruptcy since the market grew to such enormous size, so Lehman will be a test. Financial officials fear another failure of a big counterparty could start a chain reaction.

The need to find fresh money for A.I.G. is bringing new layers of complexity to the credit crisis. As an insurance concern, A.I.G. has wholly different regulators and capital requirements than the banks and Wall Street firms that have suffered most of the huge losses so far. One person briefed on the matter said that potential lenders doubted that the facility could come together without the Fed’s backing.

A.I.G. itself has had three chief executives in the last three and a half years, and one person briefed on Monday’s discussions said its officials seemed uncertain about how to proceed. The Fed was not able to provide the $40 billion bridge loan because it oversees banks, not insurers.

The talks about backing up A.I.G. began last week, when the company approached regulators, saying it was concerned that if a deal could not be put together to save Lehman, A.I.G.’s own future would be in doubt. A.I.G., through its financial products unit in London, has exposure to the same mortgage-linked debt securities that brought about the downfall of Lehman.

The talks between A.I.G. and its regulators led to the announcement at midday by Gov. David A. Paterson of New York that the state would allow A.I.G. to borrow $20 billion from its own subsidiaries, to help bolster its capital in the face of potentially disastrous credit downgrades.

Mr. Paterson said he had authorized the state insurance superintendent, Eric R. Dinallo, to include the $20 billion asset transfer in the broader plan being worked out at the New York Fed.

Normally state insurance regulations would prevent a holding company like A.I.G. from pulling assets out of its subsidiaries, which are insurance companies that need sufficient liquid resources to pay their claims.

But Mr. Paterson said the situation was dire.

“I hope you’re aware of the risks if we don’t act,” he told journalists at a midday news conference. “It is a systemic problem.”

Mr. Paterson said A.I.G. was “financially sound,” but was unable to tap the liquid assets in its subsidiaries because of regulatory constraints.

He stressed that New York taxpayers were not on the hook for the $20 billion. “No taxpayer dollars are involved,” he said.

A.I.G. is the parent of dozens of major insurance companies, and Mr. Paterson said it was possible for them to lend money to their corporate parent without putting their policyholders at risk, because the subsidiaries would receive some form of collateral. He said the collateral would consist of “illiquid assets,” but did not describe them.

Insurance sources said some of the money could be produced by exchanging assets between the holdings of A.I.G.’s life insurance subsidiaries and its property and casualty subsidiaries, which have different capital requirements. For instance, an A.I.G. property insurer might buy stock from an A.I.G. life insurer’s portfolio, paying for them with high-quality bonds from its own portfolio.

Life insurers have tighter capital requirements than property insurers, so replacing stock with bonds would strengthen the life insurer’s capital structure, allowing it to send the surplus to the holding company.

Such a transfer would leave the life insurance company with investment assets that would produce less income, so the insurer would probably have to make up the difference by charging more for its life insurance policies, annuities and other products.

Spokesmen for A.I.G. and the New York State Insurance Department said they could not provide any details on which of A.I.G.’s insurance companies would be involved in the asset transfers, because the plan was not yet final.

The governor’s announcement appeared to help arrest the decline in A.I.G.’s stock. Trading below $4 shortly before noon, the shares briefly recovered to about $6, but ended down almost 61 percent at $4.76 from their Friday close.

Ratings agencies had threatened to downgrade the insurance giant’s credit rating by Monday morning, a step that could allow counterparties to A.I.G.’s swap contracts to require A.I.G. to post collateral of up to $13.3 billion. The urgency of the talks grew by late Monday as A.M. Best Company, a credit rating organization specialized in insurance and health care companies, downgraded the credit of A.I.G. and several of its major subsidiaries. Fitch Ratings also downgraded A.I.G.’s credit Monday evening.

Standard & Poor’s downgraded its long-term and short-term counterparty ratings of A.I.G.. and Moody’s cut its rating of A.I.G.’s senior debt, to levels requiring A.I.G. to post collateral of up to $10.5 billion.

People briefed on the matter said that if JPMorgan and Goldman Sachs were able to raise a $75 billion credit line by Tuesday, it could avert an escalating series of collateral calls. But it was unclear whether they could put together such a complicated package in time.

A.I.G. has also considered sales of virtually all of its business assets, but conducting such sales quickly would be hard.

During the weekend, A.I.G. had been negotiating for a capital infusion from three private equity firms, people briefed on the matter said. But A.I.G. rejected an offer from J. C. Flowers & Company to buy $8 billion in preferred shares, because the bid included an option to buy the rest of the company at a steep discount.

Two other buyout firms, Kohlberg Kravis Roberts and the Texas Pacific Group, withdrew their offers to buy preferred shares as the Fed made clear that it would not provide any sort of backstop.

But Maurice R. Greenberg, the visionary leader who built A.I.G. but was removed during an accounting scandal in 2005, has offered to help with any restructuring. Mr. Greenberg and his lawyers asked on Saturday if he could play a role in overhauling A.I.G. The deadpan response, according to a person close to the company, was: If you are willing to make a multimillion-dollar equity investment, we are happy to talk.

Mr. Greenberg has seen the value of his holdings plummet as A.I.G. shares have sunk. He holds about 39 million A.I.G. shares directly and an additional 243 million through his private equity firm, Starr International. The shares were worth about $15.8 billion at the beginning of this year, but just $1.3 billion as of Monday.

Source: New York Times

 

By RANDALL W. FORSYTH  | MORE ARTICLES BY AUTHOR

WASHINGTON (AP) -- In a bid to save financial markets and economy from further turmoil, the U.S. government agreed Tuesday to provide an $85 billion emergency loan to rescue the huge insurer AIG. The Federal Reserve said in a statement it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy.

It also could "lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said.

"The President supports the agreement announced this evening by the Federal Reserve," said White House spokesman Tony Fratto. "These steps are taken in the interest of promoting stability in financial markets and limiting damage to the broader economy."

Treasury Secretary Henry Paulson said the administration was working closely with the Fed, the Securities and Exchange Commission and other government regulators to "enhance the stability and orderliness of our financial markets and minimize the disruption to our economy."

"I support the steps taken by the Federal Reserve tonight to assist AIG in continuing to meet its obligations, mitigate broader disruptions and at the same time protect taxpayers," Paulson said in a statement.

The Fed said in return for the loan, the government will receive a 79.9 percent equity stake in AIG.

Earlier, Fed chairman Bernanke and Paulson met with Sen. Christopher Dodd, D-Conn., Majority Leader Harry Reid, D-Nev., and House Republican leader John Boehner of Ohio, to brief them on the government's option.

"At the administration's request, I met this evening with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. They expressed the administration's views on the deepening economic turmoil and shared with us their latest proposals regarding AIG," Reid told reporters. "The Treasury and the Fed have promised to provide more details in the near future, which I believe must address the broader, underlying structural issues in the financial markets."

On Tuesday, shares of the insurance company swung violently as rumors of potential deals involving the government or private parties emerged and were dashed. By late Tuesday, its shares had closed down 20 percent -- and another 45 percent after hours. Still, no deal emerged.

The problems at AIG stemmed from its insurance of mortgage-backed securities and other risky debt against default. If AIG couldn't make good on its promise to pay back soured debt, investors feared the consequences would pose a greater threat to the U.S. financial system than this week's collapse of the investment bank Lehman Brothers.

The worries were triggered after Moody's Investor Service and Standard and Poor's lowered AIG's credit ratings, forcing AIG to seek more money for collateral against its insurance contracts. Without that money, AIG would have defaulted on its obligations and the buyers of its insurance -- such as banks and other financial companies -- would have found themselves without protection against losses on the debt they hold.

"It might not just bring down other financial institutions in the U.S. It could bring down overseas financial institutions," said Timothy Canova, a professor of international economic law at Chapman University School of Law. "If Lehman Brother's failure could help trigger AIG's going down, who knows who AIG's failure could trigger next."

New York-based AIG operates an insurance and financial services businesses ranging from property, casualty, auto and life insurance to annuity and investment services. Those traditional insurance operations are considered healthy and the National Association of Insurance Commissioners said "they are solvent and have the capability to pay claims."

 

http://biz.yahoo.com/ap/080916/aig.html

 

Before u cancel the Policy,pl consider the followings:

Are u suitable for new insurance policy----insurability.

Any insurance co. will look at u

economic-----are u a bankcrupt?No job or the pay very low.

.....................Coverage tie up with income.

social----------have u been jailed?

health-----physcial and mental

although i have confidence on Singapore AIA,i dunt advice u

any actions or non--actions.

I heard nowaday is not easy to get policy approved.

 

If u really want to terminate,pl get new one approved first

Every time u cross the road,u will look right,left and right again

before u cross the road.Every time,every day.Correct?

Like crossing a road,u have to get insurance coverage

EVERY DAY!!

One day and one week without insurance coverage is too long.

Dunt leave mess to your family.Leave then somethings!!