AIG seeking $40 billion Federal Reserve loan

by Gill Montia

Story link: AIG seeking $40 billion Federal Reserve loan

American International Group Inc. (AIG) is reported to have turned to the US Federal Reserve for a $40 billion loan.

The group is in danger of having its credit rating downgraded and according to a report in the New York Times, has shunned private-equity investment in the company because of control issues.

The insurer is believed to have been in discussions with buyout firms including Kohlberg Kravis Roberts and JC Flowers, to raise $20 billion in capital.

In the second quarter of the year, AIG posted its third consecutive loss; meanwhile it has seen its share price slide by 79% since January.

Credit Suisse recently predicted that further mortgage writedowns could result in a $2.41 billion loss in the third quarter of 2008.

Last week, Standard & Poor’s said it may downgrade AIG’s credit ratings because its falling share price may inhibit the group’s ability to raise capital.

However, AIG may yet raise the funds it needs through the sale of asset.

The insurer’s woes emanate from its credit-default swaps, which are used by debt holders to hedge against a default under a debt instrument.