AIG (American International Group) is close to an agreement with the U.S. government conditions that facilitate their rescue, provide more equity and commitment to help pay the debt, a person familiar with the matter said on Saturday. The review would be the ultimate sign of how federal regulators have to adjust the package to rescue financial institutions deemed too big to fail as the economy and the markets get worse. The board of the troubled insurer will meet on Sunday to vote on the agreement, which could be announced when AIG reports its quarterly results Monday.
That would be just a few days after the government agreed to increase its stake in Citigroup Inc (C, Fortune 500) to 36 percent in a bid to further strengthen the financial giant that taxpayers had already poured billions of dollars. The revised agreement is expected to include AIG an additional commitment of about $ 30 billion, slightly more preferred in terms of an existing investment, and a lower interest rate on a government of $ 60 billion line of credit. The new commitment of equity would AIG (AIG, Fortune 500) ability to issue preferred shares to the government at a later date.
The London Interbank Offered Rate floor on the interest rate paid by AIG in the government’s credit line is expected to be eliminated under the new conditions, which would save the insurer about $ 1 billion a year, said source. The company currently pays 3 percentage points above Libor.
AIG will also give the U.S. Federal Reserve ownership interests in American Life Insurance (Alico), which generates more than half its revenue from Japan and Hong Kong-based life insurance group American International Assurance Co (AIA) in exchange for a reducing its debt. The insurer had been trying to sell Alico and part of the AFP in an attempt to raise money for the government. AIG may also securitize U.S. Some life insurance policies and given to governments to further reduce its debt.
Last year, AIG said it plans to sell all its assets, except U.S. and low foreign-owned insurer and an ownership interest in some foreign life operations, to pay the government. Although the company has announced some sales, it has been difficult to find buyers and get a good price for the assets amid the financial crisis. For offers of credit remains difficult to achieve due to the crisis and many would-be buyers are struggling with their own problems.
“From a purely pragmatic point of view the U.S. government must do whatever it takes to get the system back on its feet and solvent, (y), then make sure the funds are returned,” said Peter Kenny, managing director of Knight Markets.
“The only part that this is an unattractive, but it is necessary to continue managing the participation of DC,” said Kenny. “Washington has been unable to balance its own books for years and now will play a disaggregated banker on Wall Street, Detroit, and nearly everyone else with your hand.”