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 the Wall Street Journal, granted permission to the insurer to access $20 billion of its own capital locked up in the company’s insurance subsidiaries.
Governor Paterson stressed the fact that under the plan AIG will shift the funds from its subsidiaries to the parent company, 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 crisis persists. So far, the insurer has posted over $17 billion in cumulative losses in the the last three quarters, prompting it to work diligently with New York officials throughout the weekend in order to shore up capital, especially after credit-rating agencies threatened downgrades.
On Monday morning, S&P placed AIG ratings on credit watch negative. The company 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 company's valued assets. The amount of the bridge loan might be around $30 billion. CNBC also said that the Fed had hired Morgan Stanley (MS) to advise in a possible bridge loan to the world’s biggest insurer.
At the time of writing, AIG shares were back around the $6 level after trading as low as $3.50.