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September 15, 2008 at 08:51 AM
New York Gov. David Paterson, D, said today during a press conference that New York regulators will let American International Group Inc. use $20 billion in assets held by subsidiaries as collateral so that it can borrow cash to fund operations.
New York Insurance Superintendent Eric Dinallo is asking the Federal Reserve Bank of New York to help AIG, New York, face its current liquidity challenges, Paterson said.
“AIG still remains financially sound,” Paterson said.
But Paterson said he acted after AIG approached the state for help.
Some sources are saying the Federal Reserve Board reacted to the Dinallo visit by asking units of Goldman Sachs Group Inc., New York, and J.P. Morgan Chase & Company, New York, to arrange up to $75 billion in loans for AIG.
A representative for AIG declined to comment on the Paterson press conference or the speculation about efforts to look for capital.
Under a headline, “the strength to be there,” AIG’s commercial insurance unit has sent agents and brokers a document saying that the challenges facing AIG Commercial Insurance’s parent company do not affect AIG Commercial’s capital position.”
“Liquidity of AIG Commercial Insurance remains very strong,” the unit says.
The price of AIG shares fell 46% last week, to $12.14 per share.
Today, the price of AIG shares fell below $4 before noon, briefly rose above $7 after Paterson spoke, and now stands at about $5.52.
Standard & Poor’s Ratings Services, New York, warned Friday that it could possibly cut the ratings of AIG and some operating companies as much as 3 notches due to concerns about the company’s ability to handle losses on mortgage-related assets.
“We believe that AIG has sufficient capital and liquidity to meet its policy obligations and potential collateral requirements, which are significantly greater than the expected cash losses on the mortgage-related assets,” S&P credit analyst Rodney Clark says in a statement accompanying the Friday announcement. “However, additional market value losses will place some strain on the company’s resources. Given the movement in the share price and credit spreads, we now believe AIG’s potential access to the capital market may be more restricted in the short term.”
This evening, S&P went ahead with cutting its long-term counterparty rating on AIG to A minus, from AA minus.
Fitch Ratings, New York, cut its long-term issuer default rating on AIG to A, from AA minus, and A.M Best Company, Oldwick N.J., changed its issuer credit rating on AIG to “bbb,” from “a plus.”
In addition to seeking temporary financing, AIG could raise cash by selling assets, analysts say.
