AIG gets breaks on loan terms, dividends

WASHINGTON (Reuters) - Insurer American International Group will get a billion-dollar-a-year break from the U.S. government from easier credit line terms and can decide for itself whether to pay dividends on new preferred shares, government officials said on Monday.

In a briefing after the Treasury Department and Federal Reserve announced a new aid plan for embattled AIG, officials said exchanging the cumulative preferred shares that Treasury now holds to noncumulative ones will give AIG's board the option to decide whether to pay dividends.

An official said that giving AIG the option to preserve capital in that way increased the likelihood it could revise itself into a smaller company with better long-term prospects.

Officials said that the billion-dollar-a-year savings for AIG would come from reduced interest rates charged on funds that it draws from a line of credit with the Federal Reserve.

The latest rescue plan for AIG is the third effort by the government since last September to stabilize it. The officials said it will take time and possibly more government support to do it, but said AIG posed too much risk to the health of the financial system to let it collapse.

In total, taxpayers have about $163 billion at risk in the various forms of assistance provided to AIG, including a new capital injection of up to $30 billion, the officials estimated.

(Reporting by Glenn Somerville; Editing by James Dalgleish)