AIG plans to raise $12.5 million, mops up $20 billion instead

21 May 2008

New York-based insurer American International Group Inc. (AIG) yesterday said that it had raised $20 billion in capital over the past month, which is 60 per cent or $8 billion more than projected, in a move to prop up its balance sheet, weakened by severe credit market-related losses. The fund raising had been required to protect against further write-downs, CEO Martin Sullivan said.

Speaking at a Lehman Brothers conference in London, Sullivan said the capital raising strengthened the company's balance sheet and enhanced its ability to grow and ''withstand significant additional market volatility.''

The new capital ''enables us to take advantage of a lot of the attractive emerging markets we're in, as well as obviously be well-positioned for any continued volatility in the credit markets,'' he said.

The embattled insurer, the world's largest by assets, raised $7.5 billion in common stock, adding 197 million shares at $38 a share. In addition, AIG issued $5.9 billion in mandatory convertible bonds at an 8.5 per cent all-in coupon and a 20 per cent conversion premium. A sale of hybrid bonds is underway.

On 8 May, AIG had said it planned to raise $12.5 billion in capital. The company made the announcement while reporting a wider-than-expected first-quarter loss of $1.41 a share. It said then that its capital cushion became ''too low for comfort''' after it wrote down holdings to reflect their reduced market value, contributing to a record $7.81 billion first-quarter loss.

In spite of the loss, AIG raised its quarterly dividend 10 per cent to 22 cents a share, saying the increase reflects the strength of the company's main insurance businesses.