AIG, Five Months Following The Government Bailout
In an action that placed AIG, the New York-based insurer at the center of the financial crisis that was just starting to turn ugly, five months ago the United States government bailed out the insurer with a massive cash infusion.
American International Group Inc. figured prominently in many of the early headlines about the financial meltdown. It was one of the first companies to be questioned recently with regard to lavish spending by executives, to be forced to cut its compensation packages and to face investigations by both United States as well as foreign authorities.
It was the government’s position that it needed to step in, saying that a failure with AIG would lead to a further disruption in the markets threatening the already fragile economy. Critics of the action were concerned that taxpayers would suffer and be out of billions of dollars in bailout money if the government continued to step in to help troubled financial companies.
AIG was about to go under back in September when it was bailed out by the government’s offer of an $85 billion loan. It was at this time that Lehman Brothers Holdings Inc. filed for bankruptcy protection and when Merrill Lynch & Co. was sold to Bank of America Corp.
In less than a month following this loan the company received yet an additional $37.8 billion loan from the Federal Reserve, and in a program by which the Federal Reserve would purchase the commercial paper or short term debt from the company, was in fact granted the ability to access up to an additional $20.9 billion.
As a part of a rescue package to help the company remain in business in the midst of the worsening credit crisis, last November, the U.S. government restructured its loans to AIG, thus providing the company with about $150 billion in total support. The new package replaced their earlier loans following it becoming apparent that the company was in need of yet additional funding.
There was a $40 billion cash infusion as a part of the $700 billion financial bailout that the government made known late last year. The government is presently purchasing preferred shares of AIG stock, which provides taxpayers with an ownership stake in the company. At the same time, restrictions are being placed on the company’s executive compensation plan.
In conjunction with the November plan of the restructured package, the government is will be spending as much as $53 billion to buy up mortgage-backed assets and other AIG debt contracts.
As of now, according to an AIG spokeswoman, Christina Pretto, the federal government has not yet exercised all of its warrants or its right to acquire AIG stock.