AIG taps $70 billion |
Federal Reserve report shows ailing insurance giant uses $9 billion more of $85 billion government loan
By Ben Rooney, staff writer
October 9, 2008
NEW YORK (CNNMoney.com) -- American International Group has tapped $70 billion of the $85 billion emergency government loan that is helping the giant insurer survive, officials announced Thursday.
Data released by the Federal Reserve shows that AIG drew down another $9 billion in the week that ended Wednesday for a total of $70.3 billion.
In the previous week, AIG had accessed $61 billion of the emergency loan.
An AIG spokesperson was not immediately available for comment on Thursday.
The Fed extended the loan to AIG on Sept. 16 as the global company was teetering on the verge of bankruptcy. In return, the government took a 79.9% stake in the company.
Fed officials said at the time that an abrupt collapse of AIG - with $1.1 trillion in assets and 74 million clients in 130 countries - could have had dire consequences for the already strained financial markets.
The company said Wednesday that it was borrowing additional funds from the New York Federal Reserve.
AIG will have access to another $37.8 billion in exchange for investment-grade, fixed-income securities that it had previously lent out to other institutions for a fee. The new loan will help AIG repay owners of these securities who now want their money back.
While the initial loan was aimed at preventing AIG from collapsing, the lending program announced Wednesday is a way for the company to secure funding for its businesses, a New York Fed spokesman said.
Last week, AIG said it planned to hold onto its property-and-casualty insurance businesses, while selling off the rest of the company to pay the massive debt.
Interest on the $85 billion loan will accrue at a steep rate of 3-month Libor plus 8.5%, which totals 12.82% at today's rates.
Members of a House investigations committee grilled former AIG executives on Tuesday, asserting that they were overpaid and mismanaged the company.
The company was lampooned for allowing certain executives to take a company paid resort vacation even after AIG had received the controversial government loan.
AIG's ex-leadership blamed accounting rules and market conditions for the problems that led to the company's downfall.
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