New York’s governor David Paterson has asked state insurance regulators to allow American International Group Inc. (AIG) to provide a bridge loan to itself. Paterson, according to WSJ, granted permission to the insurer to access $20 billion of its own capital locked up in the co.’s insurance subsidiaries.
Governor Paterson stressed the fact that under the plan AIG will shift the funds from its subsidiaries to the parent co., implying that the plan was carefully put together so that no state money was involved. Mr. Paterson added that up to 30,000 jobs were at stake if he didn’t act.
AIG’s losses remain primarily concentrated in the company’s credit derivatives portfolio of subprime-backed securities which continue to rise steadily as the subprime crises persists. The insurer has posted so far over $17 billion in cumulative losses in the the last three quarters, prompting the co. to work hard with New York officials through the weekend to shore up capital particularly, after rating agencies threatened downgrades.
This morning S&P placed AIG ratings on creditwatch negative. The co. was subsequently downgraded to Neutral from Buy at Merrill Lynch (MER) and downgraded to Hold from Buy at Citigroup (C).
Based on the latest reports from CNBC ; AIG wants a bridge loan from the Fed which would be backstopped by the co.’s valued assets. The amount of the bridge loan may be around $30 bln. CNBC also said that the Fed has hired Morgan Stanley (MS) to advice in possible bridge loan to the world’s biggest insurer.
AIG shares are back around the $6 level after trading as low as $3.50.