AIG gets NY state help to stave off cash crunch

By Lilla Zuill

NEW YORK (Reuters) - A complex asset swap brokered by New York state officials will give embattled American International Group a $20 billion lifeline, but the insurer's longer term rescue plan will depend on additional funding.

JPMorgan and Goldman Sachs are exploring putting together a syndicated $70 billion to $75 billion credit facility for AIG, among other options, one person familiar with the matter said on Monday.

The banks' efforts are supported by the Federal Reserve, which AIG appealed to for assistance late on Sunday -- one of Wall Street's most tumultuous days ever, with Lehman Brothers Holdings Inc on the verge of collapse and Bank of America moving to take over Merrill Lynch & Co.

AIG turned to the Fed after unsuccessful negotiations with several private equity firms and Warren Buffett's Berkshire Hathaway.

AIG's troubles, much like those of some of its Wall Street peers, stem from guarantees it wrote on mortgage-linked derivatives that have left it with a total of $18 billion in losses over the past three quarters.

AIG in recent days has explored a wide range of options to shore up capital and avoid rating cuts, but the three top global rating agencies downgraded anyway, and warned more downgrades could follow, potentially making it harder and more expensive for AIG to raise new capital.

Moody's Investors Service cut AIG's rating to A2 from Aa3, a two-notch downgrade. Standard & Poor's Ratings Services lowered the rating to A-minus from AA-minus, a three-peg reduction and Fitch Ratings reduced its standing to A from AA-minus, a two notch cut.

Robert Youngman, president of New York-based Griffin Asset Management and a former executive at AIG, had hoped the insurer could secure the additional credit facility before being downgraded. "The real problem is if ratings are cut," he said, before the two downgrades were announced.

Youngman holds about 350,000 AIG shares through family stakes and on behalf of clients.

"Time is the most important thing that AIG needs to solve its problems right now," he added.

The company has said it is exploring asset sales as another way to boost capital, and many expected the company to disclose details of those plans on Monday but were disappointed.

AIG's shares ended down 61 percent at $4.76 a share on Friday, on Wall Street's worst day since markets reopened after the September 11 attacks, with stocks driven lower after Lehman filed for bankruptcy and Merrill Lynch accepted a takeover.

DOWN TO THE WIRE

"AIG seems to be the next guy on the chopping block," said Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey.

New York Gov. David Paterson at a press conference on Monday said state officials agreed to ease restrictions on assets ring-fenced within AIG's insurance operations, allowing the firm in effect to provide itself bridge financing.