By Jason Simpkins
American International Group Inc. (AIG) – once the world's largest insurer – is back in discussions with the government to restructure its $150 billion bailout package for the second time in four months, as the company continues to struggle with ratings downgrades, collateral calls from debt investors, writedowns on real estate and other assets.
The insurer, due to release its earnings statement next week, could report a third-quarter loss of nearly $60 billion, an unidentified source told CNBC. That would be the largest-ever quarterly loss for a corporation.
A restructuring could include even more government funds. It's possible that the government will convert its preferred AIG shares, which pay a 10% dividend, into common stock, something U.S. officials are reportedly discussing with Citigroup Inc. (C).
"Paying a huge dividend on the preferred only makes you bleed slowly over time," Robert Haines, an analyst at CreditSights Inc. in New York, told Bloomberg. "So this would help."
The government acquired an 80% stake in AIG last year when it twice intervened to keep the company afloat. The government first stepped in with $85 billion in September. But authorities were forced to bailout AIG again in November after the company posted a $24.5 billion third-quarter loss.
The government restructured the terms of the original relief package by slashing the initial $85 billion loan to $60 billion. It also replaced a separate $37.8 billion loan to the insurance company with $52.5 billion in aid and made $40 billion of new capital from the U.S. Treasury Department's $700 billion Troubled Asset Relief Program (TARP) available to purchase the AIG's toxic assets.
"Counterparties around the world continue to have significant exposure to AIG, and market conditions continue to be fragile and sensitive to the potential disorderly failure of AIG," the Fed said in November.
AIG serves businesses and individuals in more than 130 countries and jurisdictions. Its operations extend beyond providing life and retirement insurance, to financial services and asset management, and protection against terrorist attacks.
AIG has said it plans to sell the majority of its assets to pay the government back, but there aren't many buyers at a time when credit is tight and companies are scrapping to conserve capital.
"The seller is in a rather perilous position," Thomas Russo, a partner at Gardner, Russo, & Gardner, which manages $2 billion, told Reuters. "And buyers typically appreciate the amount of leverage they have."
So far, AIG has struck agreements to sell more than $2.3 billion worth of assets, according to Bloomberg.
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