- Jun 6, 2005
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http://www.financialpost.com/story.html?id=794508
They need a $85 Billion cash injection to stop them from going bust. At first I was worried because I thought my car was insured through them, but its not, its through IAG NZ Ltd, I hope thats a difference. Don't give a fuck about United though.NEW YORK -- After a weekend spent hammering out plans for an orderly unwinding of Lehman Brothers Holdings Inc. and a takeover of Merrill Lynch & Co., U.S. regulators are now in a frantic scramble to save what would be the biggest credit crunch casualty yet: insurance giant American International Group.
Shares of AIG (AIG/NYSE), the largest insurance company in the United States, were off 36% at 11 a.m. ET after plunging more than 50% in early trading, on top of a 60% sell-off Monday, amid fears the New York-based company won't be able to secure enough fresh capital to stay afloat.
The ongoing financial turmoil sent stock markets around the globe lower early today. But my late morning, the closely watched Dow Jones Industrial Average recouped early losses and turned positive. The gains came on top of a more than 500-point rout yesterday.
As with Lehman and Merrill, investors are spooked by AIG's massive exposure to toxic mortgage portfolios. Those concerns shifted into high gear last week, forcing Lehman to agree to file for bankruptcy protection yesterday after the 158-year-old Wall Street investment bank failed to find a buyer willing to step in without financial backing from the U.S. government. Worried it could soon face the same fate, Merrill agreed to a takeover by deep-pocketed Bank of America.
AIG sought as much as a US$40 billion bridge loan from the U.S. Federal Reserve over the weekend. But the Fed, which refused to help bail out Lehman over the weekend, rebuffed the request.
Worried about the issue of "moral hazard" – essentially encouraging bad behavior by providing a rescue net when things go bad -- the Fed is pushing for a private-sector solution to AIG.
With its outlook fast dimming, AIG is scrambling to raise as much as US$75 billion to avoid stumbling into bankruptcy Goldman Sachs Group Inc. and JPMorgan Chase & Co. are said to be trying to arrange the funding. AIG's fortunes stumbled into deeper peril late yesterday as major credit-ratings agencies slashed their ratings on the company.
With the lower ratings, AIG could be forced to come up with billions of dollars of collateral. An AIG bankruptcy would be a much greater financial calamity than Lehman's orderly unwinding. "I don't know of a major bank that doesn't have some significant exposure to AIG," said Kenneth Lewis, chief executive officer of Bank of America, in a CNBC interview.
An AIG collapse would "be a much bigger problem than most that we've looked at," he added. At the end of 2006, AIG ranked among the top five biggest financial companies around the globe, with a value of US$190 billion.
Since then, however, AIG's market value has shrunk by more than 93%. When asked on CNBC today whether regulators should allow AIG to fail Republican presidential nominee John McCain said, "I think you have to."
-- Financial Post, with files from Bloomberg