New York - Struggling US insurer American International Group (AIG) Monday got another lift from the US government in the form of a 40-billion-dollar investment in preferred stock, once again underlining the key position held by the firm in the world economy. AIG has already received loans totalling 143 billion dollars.
The White House said the new lifeline will allow AIG to restructure the current loans "in a way that will not hurt the overall economy."
Both Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke "have determined that a failure by the firm would cause damage to our financial system, the US economy and the global economy," White House spokeswoman Dana Perino said. "AIG is a large, interconnected firm."
The leaders of the world's 20 leading economies are to meet Friday and Saturday in Washington in an emergency summit as worldwide recession looms from the financial crisis that has spread globally.
The extension of the lifeline came on the same day that AIG reported a record third-quarter net loss of 24.47 billion dollars. That compared to a net profit of 3.09 billion dollars in the same period last year.
The US Treasury Department, noting the importance of helping "the systemically important company," said the lifeline represented a restructuring of the other loans made since September that would "improve the ability of the firm to execute its asset disposition plan in an orderly manner."
The added lifeline will be paid out of the emergency 700-billion- dollar rescue package for the finance industry that Congress passed in October.
AIG was a key player in the securitization of US mortgages that later went sour, selling insurance policies to investors against the possible failure of the investments. With more than 3 million home foreclosures since 2006, the collapse of the housing bubble has drained credit lines and sent investors turning to AIG to make good on their insurance policies.
AIG has admitted that it did not adequately assess the risk of the mortgage securities in the policies it sold.
Commenting on the quarterly results, AIG Chairman and Chief Executive Officer Edward M Liddy said, "third quarter results reflect extreme dislocations and volatility in the capital markets and significant charges related to restructuring activities."
The report represents the fourth straight quarter of losses for the insurer, totalling 43 billion dollars.
Despite the poor economic environment, AIG - one of the world's largest insurers - reported a nearly 7 per cent rise in insurance premiums.
In September, the US central bank - the Federal Reserve - provided the company a line of credit of 85 billion dollars in exchange for 80 per cent of the AIG shares. An additional 38 billion was supplied in October.
The new package is to reduce the credit line to 60 billion dollars while the government would purchase 40 billion dollars' worth of AIG preferred stock.
The terms of the US federal aid have been made less onerous with reduced interest payments and a longer repayment schedule.
