AIG: Losing $100 Billion In A Year And Getting Bailed Out By The Government

Losing $100 billion in a year does not look like an easy task, but American International Group Inc. (AIG) managed to achieve it. The company reported its 4Q08 loss at $61.7 billion, the biggest quarterly loss in corporate history, which brought the total loss for FY08 at $99.3 billion, or $37.84 per share.

The recent quarterly losses suffered by Merrill Lynch and Citigroup (C), at  $15.4 billion and $8.3 billion, respectively, look very small by comparison now.

As a result, the U.S. government had to step in to bailout the company for the 3rd time with a restructured bailout plan - extending $30 billion in additional aid to the company.

The U.S. Treasury will exchange its existing $40 billion cumulative perpetual preferred shares for new preferred shares with revised terms, similar to common equity. The Treasury will also create a new equity capital facility of up to $30 billion in exchange for non-cumulative preferred stock to the U.S. Treasury. Under the new terms, the Treasury will get a 77.9% equity interest in the company.

Also, there are changes to the Fed’s existing $60 billion revolving credit facility for AIG. The Fed will take up to a $26 billion preferred interest in two AIG life insurance subsidiaries and make $8.5 billion in new loans. Additionally, the interest rate on the existing credit facility will be reduced.

The revised bailout exposes taxpayers to additional risk but reduces the interest and dividend payments from the company to the Government, which would ease the financial burden on the company and probably prevent more rating downgrades.

Interestingly, AIG sued the Federal Government (now its owner) on Friday over a disputed $306 million in taxes, interest and penalties.

As the financial markets continue to worsen, we expect more bailout news in the coming weeks, including for banks like Bank of America (BAC), Citigroup,  Wells Fargo (WFC), PNC Financial (PNC), etc.

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