Federal Officials rescue AIG with $85 billion
Federal officials have said they will take an 80% stake in AIG in an $85 billion plan to prevent financial chaos all over the world.
It was just announced that the Feds will attempt to resuscitate the crumbling insurance group.
Officials decided they must act lest the nation's largest insurer file bankruptcy. Such a move would roil world markets since AIG (AIG, Fortune 500) has $1.1 trillion in assets and 74 million clients in 130 countries.
"[A] disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said in a statement.
The bailout marks the most dramatic turn yet in an expanding crisis that started more than a year ago in the mortgage meltdown. The resulting credit crunch is now toppling not only mainstay Wall Street players, but others in the wider financial industry .
The line of credit to AIG, which is available for two years, is designed to help the company meet its obligations, the Fed said. Interest will accrue at a steep rate of 3-month Libor plus 8.5%, which totals 11.31% at today's rates. AIG will sell certain of its businesses with "the least possible disruption to the overall economy."
The load is expected to be reapaid eventually from the proceeds of the asses sales.
The Federal Officials wanted an investment firm to step in, but in the end that wasn't going to happen.
The firm's options grew more limited as the day wore on. Its already-battered share price fell another 21% with more than 1 billion shares trading hands, and plummeted another 46% in after-hours trading.
At one point Tuesday morning, shares fell more than 70% - a day after losing 61% of their value.
The company, which did not return calls for comment, was scrambling to raise capital to stay afloat after being hit with credit rating agencies downgrades that is forcing it to come up with billions of dollars in additional collateral fast.
New York Governor David Paterson said he didn't think the country could afford to let AIG go under.