AIG's (AIG) Extra $38B is an Outrage
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The Fed's move to provide an extra $37.8 billion in liquidity to AIG (NYSE: AIG) shows the catastrophic mess we are in. Just a few weeks ago, AIG and the Fed said the $85 billion loan given to AIG was more than enough. Now another $38 billion! Where does it end? Where did the first $85 billion go? It just vanished into the financial abyss I guess. The main street press in worried about the $400K spent on a sales retreat, yet no mention of this. Where is the outrage?
Well I guess after you lend $85 billion, you can't just turn off the spigot.
The New York Fed will borrow up to $37.8 billion in investment-grade, fixed-income securities from AIG in return for cash collateral. Drawdowns to date under the existing $85 billion New York Fed loan facility have been used, in part, to settle transactions with counterparties returning these third-party securities to AIG. The new program will allow AIG to replenish liquidity used in settling those transactions.
The new Fed $38 billion in liquidity is aimed at AIG's domestic life insurance subsidiaries. The $85 billion facility was collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries.
We wondered if this new money was being used to pay insurance holders that are cashing in their policies. Analyst David Anthony of Argus Research said he doesn't think this is the case. He called the money movement within AIG a "shell game". Anthony rates AIG a Hold.
As part of the original $85 billion loan the U.S. government received a 79.9% equity interest in AIG. The new money doesn't come with the condition of more equity.
Shares of AIG are down 15% today, but holding up pretty well in the face of the news. One has to wonder what effect this will have on the value of the common shares after all is said and done. You have to figure that the $38 billion in securities that AIG will pledge for the new cash was figured in the equation when the Fed took the 80% stake for the original $85 billion.
A number of other insurance stocks are under heavy pressure today, which may be related to the AIG news: Prudential Financial Inc. (NYSE: PRU) -34%, Hartford Financial Services Group Inc. (NYSE: HIG) -7%, XL Capital Ltd. (NYSE: XL) -42%, Principal Financial Group Inc. (NYSE: PFG) -10%, Manulife Financial Corporation (NYSE: MFC) -8%, Sun Life Financial Inc. (NYSE: SLF) -6%.
Well I guess after you lend $85 billion, you can't just turn off the spigot.
The New York Fed will borrow up to $37.8 billion in investment-grade, fixed-income securities from AIG in return for cash collateral. Drawdowns to date under the existing $85 billion New York Fed loan facility have been used, in part, to settle transactions with counterparties returning these third-party securities to AIG. The new program will allow AIG to replenish liquidity used in settling those transactions.
The new Fed $38 billion in liquidity is aimed at AIG's domestic life insurance subsidiaries. The $85 billion facility was collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries.
We wondered if this new money was being used to pay insurance holders that are cashing in their policies. Analyst David Anthony of Argus Research said he doesn't think this is the case. He called the money movement within AIG a "shell game". Anthony rates AIG a Hold.
As part of the original $85 billion loan the U.S. government received a 79.9% equity interest in AIG. The new money doesn't come with the condition of more equity.
Shares of AIG are down 15% today, but holding up pretty well in the face of the news. One has to wonder what effect this will have on the value of the common shares after all is said and done. You have to figure that the $38 billion in securities that AIG will pledge for the new cash was figured in the equation when the Fed took the 80% stake for the original $85 billion.
A number of other insurance stocks are under heavy pressure today, which may be related to the AIG news: Prudential Financial Inc. (NYSE: PRU) -34%, Hartford Financial Services Group Inc. (NYSE: HIG) -7%, XL Capital Ltd. (NYSE: XL) -42%, Principal Financial Group Inc. (NYSE: PFG) -10%, Manulife Financial Corporation (NYSE: MFC) -8%, Sun Life Financial Inc. (NYSE: SLF) -6%.
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