Wall Street crisis hits world's largest insurer
Goldman Sachs and JPMorgan Chase are understood to be putting a $75bn emergency funding package together to save the world’s largest insurer, AIG, from financial meltdown.
The US government requested the package as local and federal officials scrambled to help the insurer raise $40bn to head off the threat of a downgrade of its credit rating.
The move follows a bleak day on Wall Street which saw the demise of investment bank, Lehman Brothers, and the Bank of America taking over Merrill Lynch in a $50bn deal to save it from collapse.
It is understood that Goldman’s and JPMorgan Chase are trying to understand how much capital AIG needs and will assess the possibilities of syndicating any loan.
The dramatic measures come after the New York regulator enabled AIG to borrow $20bn from its balance sheet. Shares in AIG ended yesterday 61% down at $4.76 and come against a backdrop of the firm generating $18.5bn losses over the past nine months.
It is understood that AIG will look to sell off a number of its assets including its consumer finance group, which is part of its reinsurance business and its financial products unit to raise cash. AIG has attracted the attention of a number of private investors including Kohlberg, TPG and JC Flowers. Reports from the US have also suggested that AIG may look to sell its aircraft leasing division and that it was also in talks with Warren Buffett over a potential deal.
AIG employs 8,500 staff in New York. The company is a substantial owner of state municipal bonds and a downgrade of its credit rating would have a significant impact on the wider US economy.
In June Martin Sullivan was ousted as chief executive and succeeded by Bob Willumstad, the chairman.
For more analysis on this story see this week's Insurance Times.
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