AIG shares plummet, debt protection costs surge

NEW YORK (Reuters) - Shares of American International Group fell nearly 40 percent in pre-market trading after reports that the insurer had turned to the Federal Reserve for $40 billion in bridge financing to ward off a liquidity crisis and ratings downgrades.

The up-front cost of insuring $10 million of AIG’s debt for five years jumped to $3.05 million from $1.3 million on Friday, in addition to annual payments of $500,000, according to Markit Intraday.

The insurer, which has incurred $18 billion in losses over the past three quarters from guarantees it wrote on mortgage derivatives, was hit on Friday by Standard & Poor’s putting the company’s credit ratings on negative watch, indicating a possible downgrade.

Over the weekend, AIG executives and New York state insurance regulators scrambled to hatch a plan that would boost AIG’s liquidity.

It was not clear early on Monday when AIG would reach a plan. A spokesman did not immediately return a call seeking comment.

AIG shares have fallen about 80 percent since the start of the year.

Several analysts, in research reports on Monday, warned that the company is unlikely to resemble itself after a much-anticipated restructuring. AIG has been considering “a wide range of options,” the company said, including selling off valuable assets.

AIG, until recently the world’s largest insurer, does business in 130 countries and territories around the world, selling insurance to 74 million customers worldwide.

It has also an aircraft leasing arm, an asset management business and a financial products unit. The latter holds a credit default swap portfolio that has triggered the large mortgage losses.

AIG shares were down $4.46, or 36.7 percent, at $7.68 in premarket trade. They reached a 52-week high of $70.13 on October 9, 2007.

Reporting by Lilla Zuill, additional reporting by Karen Brettell; Editing by Steve Orlofsky