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Fed comes to the rescue of AIG


Fed comes to the rescue of AIG


The Federal Reserve has come riding to the rescue of the US’ biggest insurance company AIG with a loan worth 60 billion euros to stave off bankruptcy.

The firm will relinquish an 80 percent stake to the government, which as New York’s governor David Paterson explains, had to step in so that “Americans will have insurance, the policy holders are protected, the jobs are going to be saved and the businesses are going to continue.”

AIG has around three quarters of a trillion euros in assets, but most of that is tied up in deals that are difficult to value or recoup. With losses of 13 billion euros in the last three financial quarters, it needed cash to stay afloat. That is where the Fed has stepped in.

Initially the bail-out appeared to restore some calm to global markets, but not everyone is convinced. Some analysts warn it is only a short-term solution.

“The bail-out of AIG by the US government will become a tranquilliser for the global markets, but in the long term it is still a question whether the rescue plan can save all the financial sector within the US market,” said a Hong Kong financial strategist Castor Pang.

The move comes just two days after investment bank Lehman Brothers went bankrupt, having failed to get a lifeline from the Fed. British bank Barclays has today agreed to buy parts of the failed company for around 1.25 billion euros.

The deal would see Barclays take control of Lehman’s North American sales, trading and investment banking businesses as well as its Manhattan headquarters. Around 10,000 of Lehman’s 26,000 employees would also join Barclays.

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