Government Increases its Stake in AIG

Uncle Sam once again came to the rescue, granting American International Group, the largest insurance company in the United States, billions more in bailout funds after it posted the largest quarterly loss in U.S. corporate history.

On Monday morning, AIG announced that it lost $61.7 billion in the fourth quarter, or a $22.95 loss per share, much bigger compared to last year's $2.08 loss per share.

The U.S. Treasury also announced it will allow AIG to draw up to $30 billion in exchange for noncumulative preferred stock on Monday. In a press release, the government said the move will help to "further strengthen AIG's capital levels and improve its leverage."

The Treasury will also exchange its existing $40 billion in cumulative perpetual preferred shares for new preferred shares with revised terms to help improve the quality of AIG's equities and financial leverage.

"The company continues to face significant challenges, driven by the rapid deterioration in certain financial markets in the last two months of the year," read a statement from the Treasury. "The additional resources will help stabilize the company, and in doing so help to stabilize the financial system."

Matthew Strauss, senior currency strategist from RBC Capital Markets, said the news regarding AIG has helped to spark risk aversion in currency and equity markets. He pointed out that S&P futures dropped sharply following the announcement. The rising negative sentiment is also helping to sustain broad gains in the U.S. dollar, he added.

"The US government, or the U.S. taxpayer if you may, will own 77.9% of AIG via its [preferred] shares," he said.

In pre-market trading AIG is up 16.67% to $0.490 per share.

By Neils Christensen and edited by Stephen Huebl
©CEP News Ltd. 2009