Tech & Biz

AIG Posts Record Q4 Loss, Gets Extra $30bn Bailout

by Rachel Nixon | March 2, 2009 at 11:57 am

276 views | 28 Recommendations | 7 comments

Troubled US insurer AIG has reported a $62bn loss for the fourth quarter of 2008 - the largest such loss in corporate history.

The insurance giant, one of the highest profile casualties of the credit crunch, revealed that it had amassed a $US61.7 billion loss in the fourth quarter.

The staggering deficit, equal to $US22.95 a share, is the group's fifth consecutive quarterly loss. Its total loss in the period is in excess of $US100 billion.

The news confirms leaked Q4 figures last week.

The insurance giant will also receive an extra $30bn from the US government as part of a rescue package. It has already received $150bn from the government - the biggest bailout of any American company.

Stock markets slid sharply after the news emerged. The Dow fell below 7,000 for the first time since 1997.

You may wonder whether it might not be cheaper or less painful for AIG to be allowed to fail, however the US Government is concerned that would spark even more widespread economic problems.

“AIG by itself is not important, but it is intertwined in so many other aspects of our financial life and so many people rely on it in one form or another,” says Stan Collender, a partner at Qorvis Communications in Washington. “If AIG were allowed to go down, it could lead to possibly a global depression.”

AIG provides insurance to 100,000 entities, including small businesses, municipalities, 401(k) plans, and Fortune 500 companies, which employ more than 100 million Americans, notes a joint statement Monday from the US Treasury and the Federal Reserve about the complex financial transactions involving the company. In addition, AIG has 30 million policyholders and provides retirement insurance for hundreds of thousands of teachers and nonprofit organizations.

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mtammas

at 13:32 on March 2nd, 2009

If the demise of AIG could possibly lead to a global depression, how in the world was it ever allowed to reach such heights of power and influence unchecked?

Ubridled capitalism -- or is it unbridled greed -- has to be reigned in. But will it be? We'll see.

dowdinsk

at 13:53 on March 2nd, 2009

The Guardian has a piece reporting that AIG was brought down by its financial products division in Mayfair dubbed "the London casino".

...The division specialised in credit default swaps – entities which allowed banks to pass on the risk of default on derivatives. Because AIG boasted a coveted triple-A credit rating, it would stand behind banks' securities in return for a fee, making them more valuable and easier to trade. The unregulated nature of this business meant AIG did not need to build up reserves in case of major claims.
AIG considered this to be largely risk-free. Cassano said in 2007: "It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1." He proved spectacularly wrong as billions of dollars in liabilities exploded...

Uwe Paschen

at 19:21 on March 2nd, 2009

Hum, when you think it can not get much worth, it never seems to fail to find a way to do just that.

Rachel Nixon

at 19:37 on March 2nd, 2009

Thanks everyone for your comments and recommendations.

René

at 21:00 on March 2nd, 2009

AIG is a lousy insurance provider. Who ever let them at the trough should be.... well, I won't say it, but you know what I mean.

aig (not verified)

at 09:37 on March 3rd, 2009

If AIG goes bankrupt all banks and customers all over the world will !!

Jordan Yerman

at 11:06 on March 3rd, 2009

What does $62 billion buy these days?

1. It could pay off the combined national debts of China, Australia, Mexico and Ukraine, according to 2008 estimates by the CIA Factbook, and still have plenty left over for a good night out.

2. Shareholders could use the money they lost to buy a great fleet of planes. $62 billion would buy almost 250 Boeing 747 jumbos at about $250 million each, although they would need plenty left over to run them.