Post by psychecc on Sept 15, 2008 15:27:45 GMT -6
In a very unusual move, AIG a $1+ TRILLION insurance company went to the Fed over the weekend asking for a $40 billion bridge loan. A recent threat of a downgrade in its rating forced the move. When the Fed said "no," (sort of) AIG's stock fell 60% today, equaling a loss in value of over $19 billion. The Fed asked Goldman Sachs (whose stock was down 10% today) and JP Morgan Chase to lead a consortium of banks in providing AIG with $70-$75 billion in liquidity. Of course, the real problem is that they're INSOLVENT, and therefore illiquid.
The bond market understands this clearly. AIG's 2010 bonds are selling for 60 cents on the dollar. 2018 bonds are going for 53 cents on the dollar. This is roughly a "C" rating. If you thought you'd get paid, this would be a great investment. Obviously, nobody's buying. I should add that many commentators are stressing that AIG IS SOLVENT, just not liquid. Again, the bond market appears to disagree.
Additionally today alone, Lehman Brothers investment bank went bankrupt, and Merrill Lynch was bought in a risky move by an already overextended Bank of America. As a result, the DOW and S&P both dropped over 4%, with the DOW down 504 points. The S&P broke through its July lows, for those of you who follow the charts.
In a plus for those of us already in treasury funds, the 10 year note sold like hotcakes, the rate dropping to 3.44%. The only other bright spot I see is that the treasury dept. appears to be trying to stay away from more bailouts for companies who "have had time to fix their own problems," according to Paulsen.
Still, many are clamoring for a Fed/Treasury bailout for AIG, calling it "too big to fail." Time will tell. I still think there's a chance the treasury will intervene. If they do, they'll once again prove that "moral hazard" is a myth where financials are concerned, and it's fine to take on enormous levels of risk/debt without expecting to ever pay the piper.
Link to full article follows.
Government Trying to Arrange Financing for AIG
By CNBC.com with Wires
| 15 Sep 2008 | 03:45 PM ET
The federal government has asked investment banks Goldman Sachs and JPMorgan Chase to lead a $70 billion to $75 billion lending facility to help struggling insurer American International Group, CNBC has learned.
The move appeared to confirm earlier reports that the government preferred that funds for AIG should come from private sources. Sources told CNBC Monday that AIG should not expect bridge financing from the Federal Reserve directly and should be "assessing all their private market options."
AIG, which is seeking a bridge loan of up $40 billion from the Federal Reserve, made an unprecedented approach to the Federal Reserve seeking short-term financing on Sunday, according to media reports.
The Fed normally oversees monetary policy and supervision of banks. AIG was seeking the funds as a temporary measure and planned to repay the Fed with the proceeds from asset sales.
Meanwhile, New York State will allow AIG to use $20 billion of assets held by its subsidiaries to provide cash needed for the troubled insurer to stay in business, Gov. David Paterson said.
Paterson asked New York state insurance regulators to essentially allow AIG to provide a bridge loan to itself.
The governor has also asked the head of New York's insurance department to talk with Federal regulators about providing an additional bridge loan to AIG. "AIG still remains financially sound," Paterson said. <---"NOT," psychecc said.
The move will allow AIG to use those assets as collateral to borrow cash to fund its day-to-day operations, Paterson explained.
AIG has been battered over the past year by billions of dollars of losses tied to deterioration in the mortgage and credit markets.
Meanwhile, AIG is no longer in talks to receive help from billionaire investor Warren Buffett, CNBC has learned.
....
Shares of AIG fell sharply Monday on reports that the insurer had turned to the Federal Reserve for $40 billion in bridge financing to ward off a liquidity crisis and ratings downgrades.
AIG shares have fallen about 80 percent since the start of the year.
Paterson said he had worked with AIG in a bid to help save New York jobs, with the insurer employing 6,000 in Manhattan and 8,600 statewide. He added that the plan was carefully crafted to pose no risk to New York taxpayers.
....
Huddle in New York
The New York Federal Reserve was hosting meetings Monday on the situation of embattled insurer AIG with representatives of the Treasury Department, financial services firms and state officials, an official said Monday.
"At the request of AIG and a consortium of financial institutions, we are providing premises to discuss the situation," a New York Fed spokesman said.
A source told Reuters the New York Fed has hired Morgan Stanley to review options regarding AIG. The Fed and the Treasury Department declined to comment.
The up-front cost of insuring $10 million of AIG's debt for five years jumped to $3.05 million from $1.3 million on Friday, in addition to annual payments of $500,000, according to Markit Intraday.
The insurer, which has incurred $18 billion in losses over the past three quarters from guarantees it wrote on mortgage derivatives, was hit on Friday by Standard & Poor's putting the company's credit ratings on negative watch, indicating a possible downgrade. Over the weekend, AIG executives and New York state insurance regulators scrambled to hatch a plan that would boost AIG's liquidity.
Several analysts, in research reports on Monday, warned that the company is unlikely to resemble itself after a much-anticipated restructuring. AIG has been considering "a wide range of options," the company said, including selling off valuable assets.
AIG, until recently the world's largest insurer, does business in 130 countries and territories around the world, selling insurance to 74 million customers worldwide. It has also an aircraft leasing arm, an asset management business and a financial products unit. The latter holds a credit default swap portfolio that has triggered the large mortgage losses.
Former AIG CEO Maurice "Hank" Greenberg, who ran AIG for nearly four decades, was not involved in any of the discussions, said his spokesman, Glen Rochkind. "He repeatedly offered to assist in anyway he could," added Rochkind.
Cash Crunch
AIG, hit by $18 billion in losses over the past three quarters from guarantees it wrote on mortgage derivatives, has had to act quickly after Standard & Poor's said on Friday it may downgrade AIG's ratings.
Ratings downgrades could force AIG to post up to $14.5 billion more in collateral, according to a regulatory filing last month.
Downgrades could also be detrimental to AIG's insurance business, since some policies carry clauses that nullify a contract in the event of downgrades below a certain level.
Over the weekend, the insurer has been working on a three-part plan involving asset sales, shifting regulated capital from the insurance operations to the holding company, and working with private equity investors, said a person familiar with the negotiations.
....
AIG was founded in China 89 years ago. In the years since, largely under Greenberg's watch, it grew into one of the world's largest insurers, spanning 130 countries and territories and serving 74 million customers.... [/i]
URL: www.cnbc.com/id/26718923/
The bond market understands this clearly. AIG's 2010 bonds are selling for 60 cents on the dollar. 2018 bonds are going for 53 cents on the dollar. This is roughly a "C" rating. If you thought you'd get paid, this would be a great investment. Obviously, nobody's buying. I should add that many commentators are stressing that AIG IS SOLVENT, just not liquid. Again, the bond market appears to disagree.
Additionally today alone, Lehman Brothers investment bank went bankrupt, and Merrill Lynch was bought in a risky move by an already overextended Bank of America. As a result, the DOW and S&P both dropped over 4%, with the DOW down 504 points. The S&P broke through its July lows, for those of you who follow the charts.
In a plus for those of us already in treasury funds, the 10 year note sold like hotcakes, the rate dropping to 3.44%. The only other bright spot I see is that the treasury dept. appears to be trying to stay away from more bailouts for companies who "have had time to fix their own problems," according to Paulsen.
Still, many are clamoring for a Fed/Treasury bailout for AIG, calling it "too big to fail." Time will tell. I still think there's a chance the treasury will intervene. If they do, they'll once again prove that "moral hazard" is a myth where financials are concerned, and it's fine to take on enormous levels of risk/debt without expecting to ever pay the piper.
Link to full article follows.
Government Trying to Arrange Financing for AIG
By CNBC.com with Wires
| 15 Sep 2008 | 03:45 PM ET
The federal government has asked investment banks Goldman Sachs and JPMorgan Chase to lead a $70 billion to $75 billion lending facility to help struggling insurer American International Group, CNBC has learned.
The move appeared to confirm earlier reports that the government preferred that funds for AIG should come from private sources. Sources told CNBC Monday that AIG should not expect bridge financing from the Federal Reserve directly and should be "assessing all their private market options."
AIG, which is seeking a bridge loan of up $40 billion from the Federal Reserve, made an unprecedented approach to the Federal Reserve seeking short-term financing on Sunday, according to media reports.
The Fed normally oversees monetary policy and supervision of banks. AIG was seeking the funds as a temporary measure and planned to repay the Fed with the proceeds from asset sales.
Meanwhile, New York State will allow AIG to use $20 billion of assets held by its subsidiaries to provide cash needed for the troubled insurer to stay in business, Gov. David Paterson said.
Paterson asked New York state insurance regulators to essentially allow AIG to provide a bridge loan to itself.
The governor has also asked the head of New York's insurance department to talk with Federal regulators about providing an additional bridge loan to AIG. "AIG still remains financially sound," Paterson said. <---"NOT," psychecc said.
The move will allow AIG to use those assets as collateral to borrow cash to fund its day-to-day operations, Paterson explained.
AIG has been battered over the past year by billions of dollars of losses tied to deterioration in the mortgage and credit markets.
Meanwhile, AIG is no longer in talks to receive help from billionaire investor Warren Buffett, CNBC has learned.
....
Shares of AIG fell sharply Monday on reports that the insurer had turned to the Federal Reserve for $40 billion in bridge financing to ward off a liquidity crisis and ratings downgrades.
AIG shares have fallen about 80 percent since the start of the year.
Paterson said he had worked with AIG in a bid to help save New York jobs, with the insurer employing 6,000 in Manhattan and 8,600 statewide. He added that the plan was carefully crafted to pose no risk to New York taxpayers.
....
Huddle in New York
The New York Federal Reserve was hosting meetings Monday on the situation of embattled insurer AIG with representatives of the Treasury Department, financial services firms and state officials, an official said Monday.
"At the request of AIG and a consortium of financial institutions, we are providing premises to discuss the situation," a New York Fed spokesman said.
A source told Reuters the New York Fed has hired Morgan Stanley to review options regarding AIG. The Fed and the Treasury Department declined to comment.
The up-front cost of insuring $10 million of AIG's debt for five years jumped to $3.05 million from $1.3 million on Friday, in addition to annual payments of $500,000, according to Markit Intraday.
The insurer, which has incurred $18 billion in losses over the past three quarters from guarantees it wrote on mortgage derivatives, was hit on Friday by Standard & Poor's putting the company's credit ratings on negative watch, indicating a possible downgrade. Over the weekend, AIG executives and New York state insurance regulators scrambled to hatch a plan that would boost AIG's liquidity.
Several analysts, in research reports on Monday, warned that the company is unlikely to resemble itself after a much-anticipated restructuring. AIG has been considering "a wide range of options," the company said, including selling off valuable assets.
AIG, until recently the world's largest insurer, does business in 130 countries and territories around the world, selling insurance to 74 million customers worldwide. It has also an aircraft leasing arm, an asset management business and a financial products unit. The latter holds a credit default swap portfolio that has triggered the large mortgage losses.
Former AIG CEO Maurice "Hank" Greenberg, who ran AIG for nearly four decades, was not involved in any of the discussions, said his spokesman, Glen Rochkind. "He repeatedly offered to assist in anyway he could," added Rochkind.
Cash Crunch
AIG, hit by $18 billion in losses over the past three quarters from guarantees it wrote on mortgage derivatives, has had to act quickly after Standard & Poor's said on Friday it may downgrade AIG's ratings.
Ratings downgrades could force AIG to post up to $14.5 billion more in collateral, according to a regulatory filing last month.
Downgrades could also be detrimental to AIG's insurance business, since some policies carry clauses that nullify a contract in the event of downgrades below a certain level.
Over the weekend, the insurer has been working on a three-part plan involving asset sales, shifting regulated capital from the insurance operations to the holding company, and working with private equity investors, said a person familiar with the negotiations.
....
AIG was founded in China 89 years ago. In the years since, largely under Greenberg's watch, it grew into one of the world's largest insurers, spanning 130 countries and territories and serving 74 million customers.... [/i]
URL: www.cnbc.com/id/26718923/