The US Federal Reserve is considering extending a "loan package" to American International Group Inc. (AIG) whose shares plummeted today after the insurer's credit ratings were cut.
In US trading, AIG shares fell as low as $1.25, down nearly 74 per cent, on the New York Stock Exchange before recovering a bit to $3.29. The shares fell 60.8 per cent yesterday.
AIG, one of the world's largest insurers, is the latest company to be convulsed by a mortgage and credit crisis that this week led to a bankruptcy filing by Lehman Brothers Holdings Inc and the sale of Merrill Lynch & Co to Bank of America Corp.
The insurer has "a day" to solve its problems, New York Governor David Paterson said on CNBCtelevision.
However, it was reported this evening that The US Federal Reserve is considering extending a "loan package" to American International Group Inc. (AIG), the insurer facing a cash shortage.
The stance by federal regulators is a reversal from a position they held as late as last night, and people with knowledge of the talks are "cautiously optimistic".
AIG is searching for capital to stave off a collapse after its credit ratings were cut late yesterday. AIG's fight to stay afloat is the latest tremor to shake the global financial industry, less than a day after Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy protection and Merrill Lynch & Co. sold itself to Bank of America Corp.
AIG late Sunday asked the US Federal Reserve for help, including a possible "bridge" loan to tide it over while it pursues asset sales and capital raising.
The central bank pushed JPMorgan Chase & Co and Morgan Stanley to try to put together a credit facility of $70 billion to $75 billion for New York-based AIG, a person familiar with the matter said yesterday.
Yesterday's rating downgrades will make it much more difficult for AIG chief executive Robert Willumstad to raise cash, and could trigger demands that the company come up with nearly $20 billion.
The insurer has suffered $18 billion of losses in the last three quarters tied to guarantees it wrote on mortgage-linked derivatives. It ended June with $1.05 trillion of assets. Its failure would likely be larger than that of Lehman, which said it ended August with about $600 billion of assets.
AIG ended 2007 with 116,000 employees, more than four times as many as Lehman.