AIG: The downward spiral continues

September 15, 2008

The news just keeps getting worse.  AIG was said to be in trouble, but not facing the same sort of crisis as the investment banks.  Sure it has exposure to toxic mortgage assets, but it also has real businesses it can sell to raise capital:  an automobile insurance business, an annuities business and an aircraft-leasing unit.

Now this from the NYT: “Rush is On to Prevent AIG from Failing.”

Uh.  Come again…

Ratings agencies threatened to downgrade the insurance giant’s credit rating by Monday morning, allowing counterparties to withdraw capital from their contracts with the company. One person close to the firm said that if such an event occurred, A.I.G. may survive for only 48 hours to 72 hours.

AIG got itself into trouble selling protection to buyers of subprime and other toxic mortgage assets.  Hurricane Ike over the weekend certainly didn’t help; the Journal is reporting that the company may face significant claims.

Anyway, talks to sell some of their businesses to private-equity firms faltered, according to the Journal:

“The numbers are too daunting,” said a senior executive at a large private-equity firm. Given AIG’s huge balance sheet, “we just don’t have enough capital to fill the hole.”

This is scary stuff folks.  And it will only get scarier if depositors decide to make a run on weak banks like WaMu.

AIG has contacted the Fed for help.  They’re aren’t even a bank and they want the Fed to lend them money….

During a weekend scramble to shore up its finances, AIG turned down a capital infusion from a group of private-equity firms because it would have effectively given them control of the company, an 89-year-old giant that does business in nearly every corner of the world.

When AIG’s board rejected the capital infusion, the company’s recently appointed chairman and chief executive, Robert Willumstad, took the extraordinary step of reaching out to the Federal Reserve for help. The Fed usually deals with banks and brokers, and it wasn’t clear what it could do.

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