LevonP
10-08-2008, 08:25 PM
The Federal Reserve Board said Wednesday that it would provide up to an additional $37.8 billion to the insurance giant, the American International Group, to help the company deal with a continuing liquidity crisis.
The additional funds come atop $85 billon in credit that the Federal Reserve Board extended to AIG about two weeks, just as the current financial crisis was unfolding. At the time, the bailout of AIG was the most radical intervention ever by the central bank in a public company.
The money comes one day after two of AIG's former executives, Martin Sullivan and Robert Willumstad, answered critical questions from lawmakers about business and pay practices and outsize spending after the initial lifeline from the government. One particular point of contention during the hearing before the House Oversight and Government Reform Committee was a weeklong retreat that a life insurance subsidiary, AIG General, held for its top sales agents at the St. Regis Resort in Monarch Beach, California The $442,000 in expenses included $150,000 for food and $23,000 in spa charges, according to documents obtained by the committee.
Joe Norton, AIG's director of public relations, said in an interview that the event had been scheduled last year, though he did not know whether executives had considered canceling the retreat after the bailout.
Under the latest step, the central bank, working through the Federal Reserve Bank of New York, will provide an additional $37.8 billion to AIG's regulated life insurance subsidiaries and will receive investment-grade, fixed-income securities in return.
The money will be used to settle existing transactions related to its securities lending business. Under that program, AIG lent out securities to investors and others receiving both the value of such securities and a fee in return. The insurance giant then took the funds and placed them in other investments like mortgage-backed securities.
Now that the value of mortgage-backed securities has plummeted, AIG does not have the money to repay those who are returning borrowed securities. As a result, the central bank is stepping in to take those securities and provide AIG with cash to meet its obligations.
In a statement, the central bank said that the new program would help AIG replenish liquidity used in settling borrowed securities transactions while providing enhanced credit protection to the bank and taxpayers in the form of a security interest in these securities.
At the start of this month, AIG had already drawn down $61 billion of its original $85 billion emergency bridge loan, an announcement that startled credit ratings agencies.
The ratings agency, Moody's, downgraded AIG's senior unsecured debt on Friday and said it might downgrade other types of the company's debt, which could make it more expensive for AIG to borrow money and do business. Standard & Poor's also changed AIG's credit watch status to negative, expressing concern about whether AIG would be able to restructure with the help of the Fed.
It was a series of downgrades in AIG's credit ratings in mid-September that set off certain contractual provisions requiring the insurer to post billions of dollars of collateral with its trading partners, a catastrophic event that led to the huge federal bailout.
The additional funds come atop $85 billon in credit that the Federal Reserve Board extended to AIG about two weeks, just as the current financial crisis was unfolding. At the time, the bailout of AIG was the most radical intervention ever by the central bank in a public company.
The money comes one day after two of AIG's former executives, Martin Sullivan and Robert Willumstad, answered critical questions from lawmakers about business and pay practices and outsize spending after the initial lifeline from the government. One particular point of contention during the hearing before the House Oversight and Government Reform Committee was a weeklong retreat that a life insurance subsidiary, AIG General, held for its top sales agents at the St. Regis Resort in Monarch Beach, California The $442,000 in expenses included $150,000 for food and $23,000 in spa charges, according to documents obtained by the committee.
Joe Norton, AIG's director of public relations, said in an interview that the event had been scheduled last year, though he did not know whether executives had considered canceling the retreat after the bailout.
Under the latest step, the central bank, working through the Federal Reserve Bank of New York, will provide an additional $37.8 billion to AIG's regulated life insurance subsidiaries and will receive investment-grade, fixed-income securities in return.
The money will be used to settle existing transactions related to its securities lending business. Under that program, AIG lent out securities to investors and others receiving both the value of such securities and a fee in return. The insurance giant then took the funds and placed them in other investments like mortgage-backed securities.
Now that the value of mortgage-backed securities has plummeted, AIG does not have the money to repay those who are returning borrowed securities. As a result, the central bank is stepping in to take those securities and provide AIG with cash to meet its obligations.
In a statement, the central bank said that the new program would help AIG replenish liquidity used in settling borrowed securities transactions while providing enhanced credit protection to the bank and taxpayers in the form of a security interest in these securities.
At the start of this month, AIG had already drawn down $61 billion of its original $85 billion emergency bridge loan, an announcement that startled credit ratings agencies.
The ratings agency, Moody's, downgraded AIG's senior unsecured debt on Friday and said it might downgrade other types of the company's debt, which could make it more expensive for AIG to borrow money and do business. Standard & Poor's also changed AIG's credit watch status to negative, expressing concern about whether AIG would be able to restructure with the help of the Fed.
It was a series of downgrades in AIG's credit ratings in mid-September that set off certain contractual provisions requiring the insurer to post billions of dollars of collateral with its trading partners, a catastrophic event that led to the huge federal bailout.