AIG May Face Bankruptcy, Evaluating Alternatives

By INN Editorial Staff February 23, 2009

American International Group Inc. said yesterday that it's weighing "potential new alternatives" with the Federal Reserve Bank of New York in response to its continued struggles, according to a MarketWatch report.

"We continue to work with the Federal Reserve Bank of New York to evaluate potential new alternatives for addressing AIG's financial challenges," company spokesman Joseph Norton said in a statement. "We will provide a complete update when we report financial results in the near future."

AIG's issued its statement after CNBC said yesterday that the company will report a $60 billion loss next Monday, and is seeking further governmental support. According to the New York Times, under the U.S. Federal TARP program, the government has already lent AIG $150 billion.

The insurer’s massive losses are due to writedowns on commercial real estate and other assets, CNBC reported. AIG's board will meet Sunday to work out an agreement with the government, the news outlet said.

Additionally, the loss may trigger more ratings downgrades, which would leave AIG needing to raise more collateral, according to CNBC's David Faber. The law firm of Weil, Gotshal & Manges is preparing a bankruptcy filing for AIG, but that outcome is unlikely, he said.

The talks with the government include the possibility of additional funds for the insurer and trading debt for equity, a source familiar with the matter told Reuters.

Today, the Wall Street Journal and Financial Times ran separate stories on talks between the government and AIG over a new rescue deal. Unnamed sources said a revised arrangement could involve swapping the $60 billion federal loan for equity, other debt, and pieces of some of the insurance giant's businesses.

According to the Journal, the government could receive "major stakes" in spun-off businesses, probably including some in Asia, and the unnamed sources now say AIG is likely to post a fourth-quarter net loss of more than $60 billion on Monday.