(Corrects figure on funds left for capital injections into
non-banks to $60 billion from $30 billion in paragraph 13)
* US slashes AIG loan rate, takes $40 billion equity stake
* US to assume toxic mortgage assets that cost AIG dearly
* AIG posts $24.47 billion loss on massive capital losses
* AIG shares soar 43 percent in premarket trade
(Adds details from Treasury, Fed)
By Mark Felsenthal and Lilla Zuill
WASHINGTON/NEW YORK, Nov 10 The U.S.
government dramatically boosted its bailout of insurer American
International Group Inc (AIG.N) and eased the terms of its
loans to the company on Monday after an initial rescue plan
failed to stabilize the company.
Under the new plan, the U.S. Treasury will take a $40
billion equity stake in AIG as part of a package of credits to
prevent the collapse of what it called a "systemically
important company." The Federal Reserve is providing up to
$112.5 billion in loans and funds for asset purchases.
The new package, the largest bailout of a single company,
provides AIG with about $27 billion more than previously
extended and will leave the government exposed to billions of
dollars of additional potential losses.
"This is a one-off, created solely for AIG," a U.S.
Treasury official said of the transaction hammered out over the
"This wasn't done to help AIG shareholders. It gives the
company the room it needs in its capital structure to execute
its asset disposition plan," the official told reporters in a
AIG shares rose 29 percent to $2.72 in early trade
after the new rescue plan was disclosed.
The restructured bailout was announced as AIG posted a
$24.47 billion third-quarter loss, the largest in the company's
89-year history. In addition to massive losses on investments,
there were billions of dollars of insurance claims from
hurricanes that battered the U.S. Gulf Coast this year.
The U.S. Treasury will buy $40 billion of AIG preferred
shares with money from its $700 billion financial rescue fund,
the Troubled Asset Relief Program (TARP), a tool that did not
exist at the time of AIG's initial bailout in mid-September.
This will allow AIG to pay down its loan from the Federal
Reserve to $60 billion from $85 billion. The Fed also will
provide more than $50 billion to buy distressed securities and
backstop the firm's lending portfolio.
The new plan is nearly double the government's initial $85
billion rescue of AIG, forged on Sept. 16, weeks before the
Treasury launched its plan to inject capital directly into
American financial institutions.
The government said its equity stake in the insurer would
still be about 80 percent, making it the biggest beneficiary of
the revised bailout.
The preferred shares will carry a dividend of about 10
percent. The Fed will slash the interest rate on its remaining
loan by 5.5 percentage points to three percentage points above
three-month LIBOR. AIG will only pay 0.75 percent interest on
undrawn funds from the facility, which is extended to five
years from two years.
The AIG capital injection will reduce to just $60 billion
the amount of bailout funds that the Treasury could now to dole
out to non-bank companies before it must ask Congress for a
second $350 billion. Struggling automakers General Motors Corp.
(GM.N), Ford Motor Co (F.N) and Chrysler LLC have requested
tens of billions of dollars in Treasury aid.
The Treasury has separately committed $250 billion for
banks and thrifts, but officials are studying other uses for
the remaining funds.
A Fed official said the government, after an outside
analysis, concluded that cutting AIG's loan rate and taking on
its mortgage-backed securities and credit default swap
contracts was the best way to stabilize the firm. The
government is confident the loans will be repaid and there is a
chance it could return to profits, the official said.
AIG, once the world's largest insurer by market value,
initially got a government bailout in September after
counterparties and rating downgrades forced the company to post
large amounts of collateral for credit derivatives positions.
Last month, $37.8 billion in additional federal funds were put
at its disposal under a securities lending agreement.
The new plan replaces both of those facilities.
AIG Chief Executive Edward Liddy said the terms of the new
bailout "create a durable capital structure that will make
possible an orderly disposition of certain of AIG's assets"
and assure taxpayers are repaid in full with interest.
Credit default swap agreements have led AIG to record $18
billion in losses over the past three quarters.
The U.S. Treasury said its $40 billion investment would
subject AIG to more stringent curbs on executive pay and
bonuses than those imposed on banks and thrifts receiving
government capital injections. These include limits on golden
parachutes and a freeze on the bonus pool for the firm's top 70
executives, along with the most stringent curbs on pay for the
top five executives.
AIG reported a third-quarter net loss of $24.47 billion, or
$9.05 a share, compared with a year-earlier profit of $3.09
billion, or $1.19 a share.
AIG's revenue in the third quarter fell sharply to $898
million from $29.8 billion in the year-ago quarter. The company
also recorded $1.39 billion in catastrophe losses, primarily
from hurricanes Gustav and Ike.
A year ago, AIG's stock was about $57. It closed at $2.11
on Friday, off an all-time low of $1.25 in the hours before the
government stepped in with the initial $85 billion loan.
(Reporting by Mark Felsenthal and David Lawder in Washington
and Lilla Zuill in New York; Editing by Chizu Nomiyama)