Fed Throws AIG Another Lifeline

The $62 billion loss is the largest single-quarter deficit ever reported by one company, although only $2 billion of the loss is in cash.

The company’s general insurance operations reported a $2.8 billion loss from insurance and current investment operations, but its life and retirement operations reported a $742 million profit on current life, retirement, and investment operations.

Overall revenue from premiums remained at $20 billion.

Prior to the announcement that the government would once again support AIG, credit-rating agencies such as Standard & Poor’s and Moody’s were planning to downgrade AIG’s credit rating because of the quarterly loss. However, after the agencies were briefed on the government deal, the companies have agreed not to downgrade AIG’s debt.

As part of the deal, AIG is allowed to exchange some of its nonvoting shares, which paid a 10 percent dividend, for new shares that do not require a dividend. This will save AIG $4 billion annually.

To help ease the company’s debt burden, some of its previous debt to the government will be converted into equity in AIG’s existing subsidiaries in Asia – American International Assurance and the American Life Insurance Company.

Despite the significant losses, Liddy said AIG is still viable.

“We have made meaningful progress in addressing liquidity issues related to [all of our financial products] and our securities lending activities, and have announced several divestitures … we are taking additional steps to preserve the value of our businesses and maximize the ultimate proceeds for the benefit of all stakeholder, including taxpayers.”