Altura Ct.
Veteran Member
The Federal Reserve Board said Wednesday that it would provide up to an additional $37.8 billion to the insurance giant, the American International Group, to help the company deal with a continuing liquidity crisis.
The additional funds come atop $85 billon in credit that the Federal Reserve Board extended to A.I.G. about two weeks, just as the current financial crisis was unfolding. At the time, the bailout of A.I.G. was the most radical intervention ever by the central bank in a public company.
Under the latest step, the central bank, working through the Federal Reserve Bank of New York, will provide an additional $37.8 billion to A.I.G.’s regulated life insurance subsidiaries and will receive investment-grade, fixed-income securities in return.
The money will be used to settle existing transactions related to its securities lending business. Under that program, A.I.G. lent out securities to investors and others receiving both the value of such securities and a fee in return. The insurance giant then took the funds and placed them in other investments like mortgage-backed securities.
Now that the value of mortgage-backed securities has plummeted, A.I.G. does not have the money to repay those who are returning borrowed securities. As a result, the central bank is stepping in to take those securities and provide A.I.G. with cash to meet its obligations.
In a statement, the central bank said that the new program would help A.I.G. replenish liquidity used in settling borrowed securities transactions while providing enhanced credit protection to the bank and taxpayers in the form of a security interest in these securities.
At the start of this month, A.I.G. had already drawn down $61 billion of its original $85 billion emergency bridge loan, an announcement that startled credit ratings agencies.
The ratings agency, Moody’s, downgraded A.I.G.’s senior unsecured debt on Friday and said it might downgrade other types of the company’s debt, which could make it more expensive for A.I.G. to borrow money and do business. Standard & Poor’s also changed A.I.G.’s credit watch status to negative, expressing concern about whether A.I.G. would be able to restructure with the help of the Fed.
It was a series of downgrades in A.I.G.’s credit ratings in mid-September that set off certain contractual provisions requiring the insurer to post billions of dollars of collateral with its trading partners, a catastrophic event that led to the huge federal bailout
http://www.nytimes.com/2008/10/09/business/economy/09insure.html?_r=1&oref=slogin
The additional funds come atop $85 billon in credit that the Federal Reserve Board extended to A.I.G. about two weeks, just as the current financial crisis was unfolding. At the time, the bailout of A.I.G. was the most radical intervention ever by the central bank in a public company.
Under the latest step, the central bank, working through the Federal Reserve Bank of New York, will provide an additional $37.8 billion to A.I.G.’s regulated life insurance subsidiaries and will receive investment-grade, fixed-income securities in return.
The money will be used to settle existing transactions related to its securities lending business. Under that program, A.I.G. lent out securities to investors and others receiving both the value of such securities and a fee in return. The insurance giant then took the funds and placed them in other investments like mortgage-backed securities.
Now that the value of mortgage-backed securities has plummeted, A.I.G. does not have the money to repay those who are returning borrowed securities. As a result, the central bank is stepping in to take those securities and provide A.I.G. with cash to meet its obligations.
In a statement, the central bank said that the new program would help A.I.G. replenish liquidity used in settling borrowed securities transactions while providing enhanced credit protection to the bank and taxpayers in the form of a security interest in these securities.
At the start of this month, A.I.G. had already drawn down $61 billion of its original $85 billion emergency bridge loan, an announcement that startled credit ratings agencies.
The ratings agency, Moody’s, downgraded A.I.G.’s senior unsecured debt on Friday and said it might downgrade other types of the company’s debt, which could make it more expensive for A.I.G. to borrow money and do business. Standard & Poor’s also changed A.I.G.’s credit watch status to negative, expressing concern about whether A.I.G. would be able to restructure with the help of the Fed.
It was a series of downgrades in A.I.G.’s credit ratings in mid-September that set off certain contractual provisions requiring the insurer to post billions of dollars of collateral with its trading partners, a catastrophic event that led to the huge federal bailout
http://www.nytimes.com/2008/10/09/business/economy/09insure.html?_r=1&oref=slogin