THE insurer taken over by the United States government, American International Group, is to access US$37.8 billion from the Federal Reserve Bank of New York, in addition to the US$85 billion loan that helped it stave off bankruptcy.
AIG can swap as much as US$37.8 billion of its "investment-grade, fixed-income securities" for cash to "replenish liquidity," the Fed said. AIG spokesman Nicholas Ashooh said the assets were held mainly in US life insurance subsidiaries.
Chief Executive Officer Edward Liddy has said the US$85 billion credit line extended by the US would be enough. AIG ran short on cash after three straight quarterly losses tied to the housing slump totaling more than US$18 billion. The company agreed on September 16 to hand over a 79.9 percent stake to the US in exchange for the loan.
The Fed's use of emergency powers to expand AIG's lifeline addresses a liquidity squeeze caused by the insurer's securities-lending program, Ashooh said. The firm lost money on investments made using collateral from securities it loaned to third parties, requiring the difference to be made up, he said.
"In cases where people are not rolling over their securities and they want their collateral back, we can now satisfy them," Ashooh said.
"This gives us added liquidity until we get to a long-term solution," he added.