Insurance giant AIG sinking under credit downgrades
US insurance giant American International Group
American International Group, Inc. (AIG) (NYSE: AIG; TYO: 8685 ) is a major American insurance corporation based in New York City. failed Monday to convince credit agencies of its financial well-being, forcing it into a race against the clock to find a multi-billion-dollar infusion to stay afloat.
In blow after blow late Monday, the three main rating agencies -- Standard & Poor's, Moody's and Fitch -- lowered AIG's credit score.
Bottom line: they judge the solvency of AIG AIG addressee indicator group (US DoD)
AIG American International Group, Inc
AiG Answers in Genesis (religious group in defense of Scripture)
AIG Artificial Intelligence Group
AIG Australian Industry Group , the largest US insurer, with a global reach, at risk.
As a consequence, AIG will need to raise more capital to survive, although it already has sought billions of dollars to keep it going.
The Wall Street Journal reported Tuesday that people close to the situation say AIG may be forced into filing for bankruptcy if it cannot secure sufficient fresh funding by Wednesday.
"The situation is dire," an anonymous source close to AIG told the Journal.
The three ratings agencies gave essentially the same reasons for the downgrade: the US housing crisis, to which AIG is highly exposed, and its share freefall.
On Monday AIG shares plummeted 61 percent to 4.76 dollars; they have lost 93 percent of their value in a year.
"The rating actions reflect Fitch's view that AIG's financial flexibility and ability to raise holding company cash is extremely limited due to recent declines in the company's stock price, widening credit spreads, and difficult capital market conditions," Fitch said in a statement.
Standard & Poor's Ratings Services lowered its long-term counterparty rating to 'A-' from 'AA-' and its short-term counterparty credit rating on AIG to 'A-2' from 'A-1+' according to according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. a statement. Moody's downgraded AIG to 'A2' from 'AA3' and Fitch lowered its rating to 'A' from 'AA.'
Far more than other insurers, AIG has been a big player in a complex parallel market called credit default swaps Credit Default Swap
A swap designed to transfer the credit exposure of fixed income products between parties.
The buyer of a credit swap receives credit protection, whereas the seller of the swap guarantees the credit worthiness of the product. (CDS), financial instruments in which Wall Street companies take out a form of market insurance against the risks of bond default.
These products, often linked to the US real-estate market, are at the heart of the current banking crisis and have led to massive write-downs of assets around the world.
AIG alone has written down 25 billion dollars amid spiking defaults on US mortgage payments in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. .
In a filing with US market regulator, the Securities and Exchange Commission, AIG said it would need 13.3 billion dollars to meet its CDS obligations, if S&P and Moody's lowered its rating a notch.
Moody's, in a dire warning, said that "further downgrades of the parent and certain operating units are likely if the immediate liquidity and capital concerns are not fully addressed. Such downgrades could amount to multiple notches."
After Wall Street investment bank Lehman Brothers Lehman Brothers Holdings Inc. (NYSE: LEH), founded in 1850, is a diversified, global financial services firm. It is a participant in investment banking, equity and fixed income sales, research and trading, investment management, private equity, and private banking. filed for bankruptcy protection and peer Merrill Lynch Merrill Lynch & Co., Inc. (NYSE: MER TYO: 8675 ), through its subsidiaries and affiliates, provides capital markets services, investment banking and advisory services, wealth management, asset management, insurance, banking and related products and services on a global basis. was swallowed by Bank of America
Bank of America (NYSE: BAC TYO: 8648 ) is the largest commercial bank in the United States in terms of deposits, and the largest company of its kind in the world. Monday, it looked like AIG may be the next domino to drop in the swiftly deteriorating US financial crisis.
The US Treasury, as it had done for Lehman, ruled out using taxpayer money to prop up the insurer.
The Wall Street Journal, citing people familiar with the situation, reported that the US Federal Reserve on Monday asked Goldman Sachs Group and JP Morgan Chase to help make 70-75 billion dollars in loans available to AIG.
The stakes are high for a company that until only recently had been long considered the world's largest insurer. In the past year it has been battered by the global credit crunch Credit Crunch
An economic condition whereby investment capital is difficult to obtain. Banks and investors become weary of lending funds to corporations thereby driving up the price of debt products for borrowers. and the worst US housing slump in decades.
AIG has 74 million customers worldwide, most of them American, who would find themselves without insurance if the company goes bankrupt. It employed 116,000 people in 130 countries at the end of 2007.
New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of state has thrown the only lifeline of sorts to AIG, announcing Monday that the company can, in effect, loan itself 20 billion dollars, by borrowing against its assets.
According to US media reports, among the assets AIG is hoping to sell is its aircraft leasing business, International Lease Finance Corporation, which has a fleet of 1,000 planes.
"Although some recoveries are likely, given continued depressed market Depressed market
Market in which supply overwhelms demand, leading to weak and lower prices. values, it is unlikely that any gains will be recorded before late 2009 or 2010," S&P said.