American International Group (AIG), rescued twice last year by the US government, is asking for more aid and bracing for a fourth-quarter loss of roughly $60 billion, a source familiar with the matter said. It would be the biggest loss in a quarter in corporate history.
The $60-billion would exceed Time Warner's $54-billion single-quarter loss in 2002 and dwarf the $24.5-billion loss AIG posted in the third quarter, when the government increased its rescue package for the insurer to about $150 billion.
The latest round of talks with the government include the possibility of additional funds for the insurer and trading debt for equity, another source said on Monday. The situation is fluid and other options are being discussed, this second source said, adding that it was unclear where the talks would lead.
AIG may convert the government's preferred shares into common stock to reduce pressure on the company's cash flow. New York- based AIG pays a 10 per cent dividend on preferred stock, and none on common shares. Executives at Citigroup Inc., previously the largest bank, also have discussed a share conversion as a way to quell capital-adequacy concerns.
CNBC, which first reported AIG's discussions, said the losses to be announced next Monday were due to write-downs on commercial real estate and other assets. It said the insurer's board would meet next Sunday to work out an agreement with the government. In case they do not reach a deal, AIG's lawyers at Weil, Gotshal & Manges LLP were preparing for the possibility of bankruptcy, CNBC said.
AIG said in a statement it had not yet reported results and would provide an update when it does so in the near future. "We continue to work with the US government to evaluate potential new alternatives for addressing AIG's financial challenges," AIG said.
AIG was first rescued in September after bad mortgage bets left it on the verge of collapse. The government stepped in with $85 billion in bailout financing, as the credit crisis peaked with Lehman Brothers Holdings Inc filing for bankruptcy and Merrill Lynch agreeing to be bought by Bank of America Corp. (See: $85-billion bailout for AIG / Fed pumps another $37.8 billion in AIG)
The rescue swelled in November as AIG posted its then largest ever loss, hurt by write-downs on assets linked to sub-prime mortgages and capital losses. The Federal Reserve and US Treasury stepped in with even more money to buy mortgage assets that had left AIG deeply in the red, and eased the terms of its loan repayment.
AIG has said it plans to sell all assets except its US property and casualty business, foreign general insurance, and an ownership interest in some foreign life operations, as it looks to raise money to pay back the government.
The company reportedly received bids from MetLife Inc. and Axa SA for its American Life Insurance Co. (Alico) unit, which does business in more than 50 countries. New York-based MetLife made a preliminary offer of as much as $11.2 billion, the people said. A rival approach from Axa in Paris excludes operations in Japan, Alico's biggest.
Although AIG has announced some sales, it is trying to sell assets at a time when buyers are often dealing with their own problems and credit for acquisitions is scarce. The insurer's ongoing troubles are likely making things harder. (See: Bank of Montreal acquires AIG's Canadian business for $375 million / Munich Re to buy AIG unit for a bargain price of $742 million / AIG offloads private banking arm for $254 million)