NEW YORK (Reuters) - American International Group Inc posted a record $61.7 billion quarterly loss on Monday and got a new but not necessarily final government bailout, after officials concluded again that letting the insurer fail would threaten the world financial system.
AIG will get access to up to $30 billion of new capital after getting a commitment for $150 billion in aid last year that gave the government a stake of nearly 80 percent.
The latest bailout increases the government's commitment to keeping AIG on life support, and avoids for now any crippling credit rating downgrades that could force AIG to come up with billions of dollars it might not have.
"It's a pretty strong reminder that the U.S. Treasury is still all that stands between the current market environment and the ongoing threat of systemic financial meltdown," said Christopher Garman, head of Garman Research LLC in Orinda, California, and a former Merrill Lynch bond strategist.
White House spokesman Robert Gibbs said "today's actions were critical" to preventing AIG from further threatening the financial system.
Separately, the Treasury Department and Federal Reserve said urgent action was needed now to keep AIG in business.
"Given the systemic risk AIG continues to pose and the fragility of markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high," they said in a joint statement.
Speaking on a conference call, AIG Chief Executive Edward Liddy called the market "a pretty crummy place" right now, and said fixing the insurer could take "several years."
Monday's agreement came three days after a new federal bailout for Citigroup Inc, which like AIG has struggled to sell businesses and raise cash to repay the government.
Federal Deposit Insurance Corp Chairman Sheila Bair said U.S. regulators are committed to preserving financial companies that are too important to the system to fail. U.S. Comptroller of the Currency John Dugan separately told reporters he did not see the AIG situation as a template for banks.
AIG's fourth-quarter loss of $22.95 per share widened from $2.08 per share, or $5.29 billion, a year earlier.
Most of the loss stemmed from big writedowns tied to credit default swaps and other toxic debt.
The latest loss equaled about $465,000 a minute, and was a record for a U.S. company, according to Thomson Reuters data.
For all of 2008, AIG lost $99.29 billion, wiping out profits dating to the early 1990s. That amount is close to the gross domestic product of Kuwait.
AIG built up its exposure to swaps earlier this decade, when long-time CEO Maurice "Hank" Greenberg and then Martin Sullivan ran the company.
Swaps were underwritten at the AIG Financial Products unit, run by London-based executive Joseph Cassano.
Greenberg, AIG's largest individual shareholder, filed a federal lawsuit in New York accusing AIG, Sullivan, Cassano and others of fraud for misrepresenting AIG's health. The defendants did not immediately return calls seeking comment.
AIG shares closed unchanged at 42 cents. Its 5.45 percent notes maturing in 2017 rose 8 cents on the dollar to 53 cents, cutting their yield to 15.9 percent, MarketAxess said. The cost of insuring AIG debt fell, suggesting less risk of default.
U.S. stocks broadly tumbled, with the Dow Jones industrial average and the Standard & Poor's 500 each shedding more than 4 percent. The Dow fell to 6,763, its first close below 7,000 since May 1997.
"What's really overhanging the market is AIG. We gave them all that money, and they are obviously still bleeding terribly," said Warren Simpson, managing director at Stephens Capital Management in Little Rock, Arkansas.
The new bailout gives AIG more lenient terms on existing financing. AIG will convert some debt into a preferred equity stake for the government in its American International Assurance Co and American Life Insurance Co units, which each have significant Asian operations.
AIG also said it plans to spin off part of its property-casualty business, to be renamed AIU Holdings. It said it believes it has enough liquidity for the next year.
In agreeing to a new bailout, the Treasury and Fed cited AIG's operations in more than 130 countries, its role as an insurer for more than 100,000 entities, and its more than 30 million U.S. policyholders.
The government also acknowledged the bailout might not be AIG's last. It said fixing the insurer "will take time and possibly more government support if markets do not stabilize and improve.
AIG's roots date back 90 years to China where founder C.V. Starr, a U.S. entrepreneur, set up a small insurance agency.
The government appointed Liddy, a former CEO of Allstate Corp, to run AIG in September.
On the conference call, Liddy said AIG had become "too complicated, unwieldy and opaque" to operate as it has.
Donn Vickrey, an analyst with independent research firm Gradient Analytics in Scottsdale, Arizona, said the government's commitment to AIG may ultimately reach a quarter trillion dollars, much of which it may not recoup.
"AIG really has nowhere else to turn," he said. "Taxpayers are stuck with trying to unwind it slowly over time. Hopefully there will be something left over at the end."
Major credit rating agencies affirmed AIG's ratings, which fall in the "single-A" category, a medium investment grade.
Moody's Investors Service analyst Bruce Ballentine said he expected the government "will provide incremental support as needed to ensure that AIG can meet its obligations through this period of severe economic recession and market turmoil."
Additional reporting by Karen Brettell, Chuck Mikolajczak and Walden Siew in New York; and John Poirier, Matt Spetalnick, Glenn Somerville and Karey Wutkowski in Washington; editing by Ted Kerr and Jeffrey Benkoe