AIG Hit With Downgrades To Debt Ratings

Credit Agencies Hammer World's Largest Insurer As It Struggles To Raise Cash

(CBS/ AP)  American International Group Inc., the world's largest insurer, was hit by a wave of downgrades by credit-rating agencies worried that the deteriorating housing market is further undermining the company's battered finances.

All three major agencies - Standard & Poor's, Moody's Investors Services and Fitch Ratings - dropped AIG's ratings at least two notches late Monday. While the new ratings are all still considered investment grade, the downgrades add to the pressure on AIG as it seeks billions of dollars to strengthen its balance sheet.

AIG spokesmen did not return calls seeking comment on the impact of the downgrades. But last month, the company estimated in a regulatory filing that a one-notch downgrade of its long-term senior debt ratings by both S&P and Moody's would force it to post $13.3 billion in extra collateral.

The need for that extra capital would put a constraint on AIG's day-to-day liquidity position, which is why the company has been seeking new financing or capital investments.

Financial stocks across Europe and Asia took a pounding as news of AIG's credit downgrades, along with the collapse of Lehman Brothers, stoked investor fears of wider financial and economic damage.

"My guess is that we haven't seen the bottom," said Tony Dolphin, director of economics and asset allocation at Henderson Global Investors in London.

AIG is in a precarious position, in part, because of concerns about its credit ratings and how that would affect its portfolio of financial instruments known as credit default swaps. The swaps are essentially insurance coverage to protect investors against defaulting bonds or debt.

Moody's said it downgraded AIG "in light of the continuing deterioration in the U.S. housing market and the consequent impact on the group's liquidity and capital position due to its related investment and derivative exposures."

AIG has been battered over the past year by billions of dollars of losses tied to deterioration in the mortgage and credit markets. On Monday its shares fell $7.38, or 60.8 percent, to close at $4.76.

The Federal Reserve has asked Goldman Sachs Group Inc. to work with JPMorgan Chase & Co. about a possible short-term loan to keep AIG in business, according to a person familiar with the request who could not speak publicly because talks were still ongoing. The loan could be for about $70 billion, the person said.

JPMorgan is a financial adviser for AIG. Calls to Goldman Sachs were not immediately returned. Treasury spokeswoman Brookly McLaughlin declined to comment when asked about the possible financing efforts.

New York Gov. David Paterson, meanwhile, stepped to the company's aid by saying the state will allow AIG to use $20 billion of assets held by its subsidiaries to provide cash needed to stay in business.

Paterson asked New York state insurance regulators to essentially allow New York-based 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.

The move will allow AIG to use those assets as collateral to borrow cash to fund its day-to-day operations, Paterson explained.

It also helps AIG by "giving them what they need most, which is time," said Keefe Bruyette & Woods analyst Cliff Gallant, who added that the relaxation of insurance regulations is "unprecedented."

Typically, a state insurance commissioner's priority is to protect the policyholder, and that includes making it very difficult for an insurer to access the funds that are used to pay claims.

AIG's chief executive, Robert Willumstad, who has been CEO since June, has indicated he is willing to shed some assets, saying about a month ago that a "less complex AIG would be a better competitor."

[brianbwb-2009]

"Paterson asked New York state insurance regulators to essentially allow New York-based AIG to provide a bridge loan to itself."

This governor is either stupid, or complicit in the massive fraud being committed against shareholders and policyholders. It is the height of fraudulent bookkeeping that an insurer, not having the liquidity to cover it''s exposure, can now borrow FROM ITSELF???

Borrow what, capital required for paying policyholders, and/or earnings due to shareholders? Are they not simply postponing and compounding the inevitable, so that the CEO and his cronies can milk the last drops of overpaid salary from the company? If they had enough capital to lend themselves, then it follows logically that they shouldn''t have the problems they have.

"AIG still remains financially sound," Paterson said.

Is Paterson a Dem, or a Gop-er?

Either way this semantic deception, this blatant prevarication, this outright lie sounds like "stay the corruption and greed course" to oblivion, leading one to guess he might be GOP.

All policy holders and shareholders had better get out while they can with whatever little they can realize, until now they were suckered by false accounting, but now that AIG''s position is known worldwide, if you choose to stay in, the certain, and even worse financial loss will be on your own head.

[oscarez]

Is America great or what! Where else can a man rise to the top of a company and make millions then run the company into the ground and walk away smelling like a rose. Eat cake all you middle class little people. Power to the rich McCains.

[whitemale08]

I''m sick and tired of these Republican failures!

I tried my best to warn stupid stupid Republicans that our economy is finished thanks to these uneccessary wars in Iraq and "tax cuts for the rich".

Instead you listen to idiotic junkyard dogs like Sean Hannity and Rush Limbaugh who now sound so stupid trying to explain the failure of the Repubican economy.

I hope now you will listen to me and shun all Republican ideology and failed Reagonimcs. It has destroyed our economy perhaps beyond repair and "supply-side trickle-down voodoo" will simply not work for American hard working families.