The Federal Reserve Board late Tuesday confirmed it would authorize the Federal Reserve Bank of New York to lend as much as $85 billion to American International Group Inc., which has unraveled in the face of mounting losses related to insurance on complex financial instruments and credit downgrades that forced the company to raise billions in capital. The New York insurance company is the largest in the world.
Bailing out a private company not under its direct purview is an extraordinary and historic move for the Federal Reserve, whose primary roles include setting United States monetary policy and banking supervision and regulation.
All the assets of AIG and of its primary non-regulated subsidiaries are held in collateral to the loan, the Fed said. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.
The AIG facility has a 24-month term. Interest will accrue on the outstanding balance at a rate of three-month LIBOR plus 850 basis points. AIG will be permitted to draw up to $85 billion under the facility.
Source: Sacramento Biz Journal
The markets definitely like it. Futures are up huge. Asian markets are up nicely. The interesting fact is FED kept rates steady because this was in the works. So market rally to continue.
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