- The Washington Times - Monday, November 10, 2008

The Treasury Department provided American International Group Monday morning with a $40 billion cash infusion in exchange for preferred stock as part of a restructuring of the giant insurer’s September rescue package.

AIG executives, who were criticized in a hearing on Capitol Hill for enjoying lavish events even as they took money from the government, will be subject to stringent limits on pay under the agreement with Treasury, including no increase in bonuses or golden parachutes. They also must comply with restrictions on lobbying and corporate expenses.

The company will use the Treasury’s $40 billion to pay back some of the loans it received from the Federal Reserve in mid-September to stave off bankruptcy. The Fed also is restructuring its more than $100 billion in loans to AIG, lowering the high interest rate of 14 percent and penalty fees it originally extracted to reflect the more lenient terms the Treasury and Fed recently has been offering banks and other companies.

AIG was struggling under the previous harsh agreement with the Fed, and had been unable to sell off company assets to repay the loans.

Under the new deal, the Fed is purchasing $52.5 billion of troubled mortgage assets and dissolving the insurance contracts the company wrote on them, enabling the company to shed a key source of its financial troubles. AIG was driven to the brink of bankruptcy in September as it was forced to raise collateral to back the insurance it provided on its huge portfolios of troubled loans.

New York-based AIG said it lost $24.47 billion, or $9.05 per share, after a profit of $3.09 billion, or $1.19 per share, a year ago. Revenue declined 97 percent to $898 million from $29.84 billion in the third quarter 2007.

“No one really knew what the losses were going to be, everyone knew that they were going to be horrible,” said CreditSights analyst Rob Haines.

And even with the additional help from the Federal Reserve and the Treasury Department, “AIG is still a troubled company,” he said.

The latest results include $7.05 billion in unrealized losses at AIG Financial Products, the source of credit-default swaps, and pre-tax losses of $18.31 billion tied to the declining value of AIG’s investment portfolio.

“Reported earnings are not indicative of the underlying core earnings power of our insurance businesses, which remain solidly capitalized,” said AIG President and Chief Executive Edward Liddy in a statement. “Retention of our customers remains strong and reflects the support and loyalty of our long-term partners, intermediaries and sponsors.”

The Associated Press contributed to this article.

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