NEW YORK (Reuters) - The U.S. government has agreed to pour about $30 billion in additional equity into struggling insurer American International Group Inc (AIG.N), one of several moves to sweeten a bailout which left the insurer struggling, sources said on Sunday.
The agreement includes more lenient terms on an existing government investment in AIG preferred shares and a lower interest rate on a $60 billion government credit line, a source familiar with the matter told Reuters.
AIG’s board voted to approve the revised agreement on Sunday, sources said.
The following is reaction from analysts and investors:
PETER MORICI, PROFESSOR AT THE SMITH SCHOOL OF BUSINESS, UNIVERSITY OF MARYLAND
“AIG is insuring the losses of the banks...It’s the other side of the banks’ problems. Until the government does something to stop the losses, it’s going to be pouring money into both AIG and the banks.”
“This is just another band-aid.”
“There’s no amount of money that you can give (AIG), there are $2 trillion in losses out there.”
“This is like giving them three buckets when there’s a hole in the boat.”
“The government really does not have the option of letting AIG totally blow up. The swap book at AIG Financial Products notional value is still more than $300 billion. This is not at a regulated insurance sub but is holding company exposure. The counterparties on most of the book are euro banks that would be hammered if the U.S. walked away.”
“The market has known about the losses at AIG for a few days now and is expecting some form of bailout. If tomorrow we hear that no agreement was reached, watch out.”
MARK KEENAN, AN INSURANCE PARTNER AT LAW FIRM ANDERSON KILL & OLICK (comment was made before details of final deal terms)
“If this deal is actually approved, it should go a long way in calming the markets and many of my clients (risk managers, policyholders and brokers) who have legitimate concerns about the long term viability of AIG and its insurance subsidiaries.”
“The U.S. government is fully aware that many will criticize this deal as nothing more than a band-aid. The deal was made anyway. After all of these efforts, the message to me is that the U.S. government is committed to saving AIG —whatever it takes. After all, at this point, AIG is the U.S. government.”
Reporting by Walden Siew, Elinor Comlay and Kristina Cooke