The government today provided new financial assistance to troubled insurance giant American International Group, including pouring $40 billion into the parent of Hartford Steam Boiler Inspection and Insurance in return for partial ownership.
Meanwhile, New York-based AIG said it lost $24.47 billion, or $9.05 per share, in the third quarter after a profit of $3.09 billion, or $1.19 per share, a year ago. AIG’s revenue declined 97 percent to $898 million from $29.84 billion in the third quarter 2007.
The action, announced jointly by the Federal Reserve and the Treasury Department, was taken as it became increasingly clear that an original financial lifeline thrown to AIG in September would be insufficient to stabilize the teetering company. All told, the moves boost aid to the company to around $150 billion in what is likely to be the largest bailout to a single private firm. Fed officials, however, expressed confidence that the money would be repaid to taxpayers.
The $40 billion infusion comes from the recently enacted $700 billion financial bailout package. The government is buying preferred shares of AIG stock, giving taxpayers an ownership stake in the company. In turn, restrictions will be placed on executive compensation at the firm.
As part of the new arrangement, the Federal Reserve is reducing a $85 billion loan it had made available to AIG to $60 billion. The Fed also is replacing a separate $37.8 billion loan to the insurance company with a $52 billion aid package.
At 11 a.m., AIG shares traded at $2.55, up 44 cents, or 21 percent.
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.
AIG’s general insurance business swung to a loss on $1.39 billion in catastrophe losses, primarily related to hurricanes Gustav and Ike, falling investment income and increased losses at United Guaranty Corp.
General insurance net premiums dipped nearly 1 percent to $11.73 billion, while total net premiums earned edged up 2.6 percent to $11.73 billion.
Life-insurance and retirement-services profits were more than halved by weak partnership and mutual-fund results.
Adjusted to exclude certain items, operating losses totaled $9.24 billion, or $3.42 per share, versus a profit of $3.49 billion, or $1.35 per share, last year.
The results fell short of estimates. Analysts surveyed by Thomson Reuters, on average, forecast a loss estimate of 90 cents per share on revenue of $18 billion. (AP)
