AIG secures crucial lifeline loan

Tuesday, 16 September 2008 12:00

American Insurance Group (AIG) is set to borrow $20 billion (£11.2 billion) from its own subsidiaries as a “bridge loan” to keep the firm afloat.

Following a tumultuous day on the US finance markets, AIG requested a loosening of regulations that prevent insurance companies borrowing from themselves in order to keep trading.

New York governor David Paterson agreed to the request yesterday, after being told the situation was “dire” and the firm’s 30,000 employees were at risk of losing their jobs.

The deal will allow AIG to continue its day-to-day operations and give it breathing room to sell some of its assets.

No taxpayer money will be involved, Mr Paterson said.

However, all three major ratings agencies have slashed the firm’s ratings and AIG’s stock price continues to fall as fears grow the loan will not be enough.

Earlier in the year it seemed that insurers had avoided the worst of the credit crunch, while banks continued to suffer.

However, the ongoing turmoil in the financial markets has taken its toll on the industry and in August AIG reported a $5.36 billon (£2.75 billion) loss for the second quarter, compared to a $4.28 billion profit in the same period of 2007.

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