AIG warns that $122.8 billion in U.S. aid may not be enough

The chief of crippled insurance giant American International Group warned that Uncle Sam may need to to write a bigger check to keep the company afloat.

From Bloomberg News:

AIG . . . may need to borrow more than the $122.8 billion already offered by the government if capital markets don't improve, said Chief Executive Edward Liddy.

AIG, which averted collapse last month with a Federal Reserve loan, is dependent on "what happens to the capital markets," Liddy, 62, said late Wednesday on PBS's "NewsHour With Jim Lehrer." AIG needed cash after credit downgrades forced the insurer to post more than $10 billion in collateral to clients who purchased guarantees on bonds that lost value.

"To the extent they continue to go down and we have to keep posting collateral, as it's called in the vernacular of the industry, it's possible it may not be enough," Liddy said.

AIG, which got an $85 billion credit line on Sept. 16 to stave off bankruptcy, was given access to an additional $37.8 billion on Oct. 8 to shore up its securities-lending program, which lost money on investments made using collateral from assets it loaned to third parties. AIG agreed to turn over an 80% stake in the firm to the U.S. in exchange for the first loan.

"This emphasizes the uncertainty for anyone trying to put a number" on AIG's cash needs, said Bill Bergman, an analyst at Morningstar Inc. in Chicago. The financial products unit responsible for most of the firm's losses "is a big black hole."

Read the full story here.

The New York Fed branch said this afternoon that AIG had tapped $90.3 billion of the credit line, up from $82.9 billion a week ago. So the company already has gone beyond the original $85-billion allotment.

AIG shares lost a penny to $2.10 today, getting closer to the multiyear low of $2.05 reached on Sept. 17. The stock had bounced as high as $5 after the rescue was announced.

Comments

[Mr.Bilko]

AIG is/was one of the biggest players in credit default swaps. The trend lines makes it clearer by the day that AIG is being hammered by its CDS contracts. We won't officially know until 4th qtr reports are issued in Jan'09, but it's starting to look like credit default swap contracts are killing AIG.