US government injects additional $30 billion in AIG

02 March 2009

Fearing further tremors in the global financial market, the US government has once again stepped in to bail out the world's biggest insurer for the fourth time with an infusion of $30 billion, in the backdrop of AIG's biggest quarterly loss in US corporate history, which posted a historic $61.7-billion quarterly loss in the third quarter alone (See: AIG may report largest ever quarterly loss in corporate history)

The government decided to give it additional funding, as it felt that the risk would be far greater if it allowed AIG to collapse.

In a joint statement, the Federal Reserve and the Treasury said that AIG continues to face significant challenges and "The additional resources will help stabilise the company, and in doing so help to stabilise the financial system," it said.

The US Federal Reserve will give AIG, $30 billion in cash from the Troubled Assets Relief Program while it will receive non-cumulative preferred stock.

The Federal Reserve, will also reduce the insurer's $60 billion revolving credit facility in exchange for preferred interests in two special purpose vehicles created to hold all of the outstanding common stock of AIG's Asian subsidiaries, American International Assurance and the American Life Insurance Co.

By doing so, AIG will not pay the government back $38 billion in cash with interest, which it has used from a Federal Reserve credit line, but will repay it with equity stakes in the two Asian subsidiaries.