The Federal Reserve Bank of New York announced tonight that it will lend as much as $85 billion to American International Group Inc. to meet the liquidity needs of the troubled insurer.
Under the terms of the agreement, the U.S. government will receive a 79.9% equity interest in the New York-based insurer and has the right to veto the payment of dividends to common and preferred shareholders.
“The board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance,” the Federal Reserve said in a statement.
“We believe the loan, which is backed by profitable, well-capitalized operating subsidiaries with substantial value, will protect all AIG policyholders, address rating agency concerns and give AIG the time necessary to conduct asset sales on an orderly basis,” the board of directors at AIG said in a statement.
On Monday evening, three major ratings agencies downgraded the company, sending its shares plunging in Tuesday trading (InvestmentNews, Sept. 16).
Shares of AIG fell as much as $3.51, or 74%, in morning trading to $1.25.
The stock rallied later in the day to close down 81 cents, or 17%, at $3.95 per share.
AIG shares have fallen $13.60, or 78%, since trading opened on Friday.
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