AIG in liquidity crisis; seeks $40 billion Fed funding: report

15 September 2008

Mumbai: Global insurance major American International Group Inc has sought $40 billion in short-term financing from the Federal Reserve to boost capital of its holding company and stave off rating downgrades, media reports said.

AIG's unprecedented move to secure central bank funding comes after reports that Wall Street banking giant Lehman Bros is on the verge of collapse and Bank of America is taking over rival Merrill Lynch & Co.

While it is still not yet clear whether the Fed would grant the request from the insurance giant, reports said chief executive Robert Willumstad has already moved the Fed.

AIG is seeking the funds as a temporary measure and plans to repay the Fed with the proceeds from asset sales, a CNBC report said.

AIG, the world's biggest insurer by market capitalisation, sought emergency funding after its shares fell nearly 50 per cent last week on fears it faced a liquidity crisis. Rating agencies have threatened to downgrade AIG's ratings if it failed to boost liquidity.

AIG shares were down more than 45 per cent in premarket trading on Monday morning as financial stocks fell around the globe in the aftermath of the collapse of Lehman Brothers.