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WORLD> America
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AIG seeks capital, considers selling units for funds
(China Daily)
Updated: 2008-09-16 06:38 American International Group Inc, the largest US insurer by assets, was working on plans late on Sunday to raise capital and sell units to forestall credit downgrades from hobbling the company. AIG asked the Federal Reserve for a $40 billion bridge loan after rejecting an offer from JC Flowers & Co that would have given the buyout firm an option to acquire the whole company, the New York Times said, citing an unidentified person. AIG may get access to the Fed's borrowing window in an "extreme liquidity scare," Citigroup Inc analyst Joshua Shanker said on Sept 12. Chief Executive Officer Robert Willumstad is under pressure to raise capital after three quarterly losses totaling $18.5 billion. AIG fell 27 percent in German trading yesterday on investor concern the New York-based insurer can't raise enough cash to withstand further writedowns from credit-default swaps, contracts AIG sold to protect fixed-income investors. "The driving force in this is to raise capital to give them more of a cushion to stave off a downgrade," said Janet Tavakoli, president of Chicago-based Tavakoli Structured Finance. Standard & Poor's said on Sept 12 it may downgrade AIG's credit ratings because the share declines may crimp the insurer's access to capital. AIG slumped to $8.84 by 11:12 am in Germany, after closing at $12.14 on the New York Stock Exchange on Sept 12. The stock has fallen 79 percent this year in New York. A ratings cut may have "a material adverse effect on AIG's liquidity" and trigger more than $13 billion in collateral calls from debt investors who bought the swaps, the insurer said in an Aug 6 filing. AIG has already posted $16.5 billion in collateral through July 31. A downgrade could also set off early termination of swaps that may cause $4.6 billion in payments, AIG said. "We would not be surprised to see the Federal Reserve open its borrowing window to AIG," Shanker said in a note to investors Sept 12. "The Fed could argue the action is for the public good as it protects the security of many housing loans." AIG has units that originate, guarantee and invest in mortgages. AIG spokesman Nicholas Ashooh and the Fed's Michelle Smith didn't return phone calls seeking comment. The Federal Reserve yesterday widened the collateral it accepts for loans to Wall Street bond dealers as the financial industry braced for a Lehman Brothers Holdings Inc bankruptcy filing. The 158-year-old securities firm filed a Chapter 11 petition with US Bankruptcy Court in Manhattan yesterday. The steps announced yesterday, were along with significant commitments from the private sector, intended to mitigate the potential risks and disruptions to markets, Fed Chairman Ben S. Bernanke said in a statement released in Washington on Sunday. The insurer was in discussions with buyout firms including KKR & Co and JC Flowers to raise $20 billion in capital, said people familiar with the situation. The firms met with AIG executives in New York, said one of the people, who declined to be named because the talks were private. AIG is said to be working with advisers JPMorgan Chase & Co, Citigroup Inc. and Blackstone Group LP. JC Flowers had offered $8 billion for a stake in the insurer that would have given the firm an option to buy the rest of AIG, the Times said. The insurer may also seek $20 billion through asset sales, said a person familiar with AIG's planning. American General Finance, AIG's consumer lender, could fetch more than $6 billion if the unit sold for twice its book value. AIG Investments could sell for more than $3 billion if it sold for 2.5 percent of clients' assets under management. The company's stake in reinsurer Transatlantic Holdings Inc is worth about $2.2 billion, based on the Sept 12 share price. |
