NEW YORK: American International Group Inc shares plummeted after the insurer’s credit ratings were cut, heightening concerns it might file for bankruptcy and cause more turmoil in global markets.
In afternoon trading, AIG shares were down $1.76, or 37 percent, at $3.00 on the New York Stock Exchange, after earlier falling as low as $1.25. The shares had fallen 60.8 percent on Monday. AIG is part of the Dow Jones Industrial Average, and Dow Jones Indexes said it was monitoring the situation.
Shares of AIG recovered some early losses after CNBC television said government money might be used in a bailout of the company, but they later fell after the network said US Treasury Secretary Henry Paulson opposed that idea and that a private sector solution wasn’t likely.
New York Gov. David Paterson was getting federal officials to consider helping AIG following pressure from policyholders, CNBC said. The governor told the network that AIG has “a day” to solve its problems.
AIG is the latest company to be convulsed by a mortgage and credit crisis that this week led to a bankruptcy filing by Lehman Brothers Holdings Inc and the sale of Merrill Lynch & Co to Bank of America Corp.
Analysts said a bankruptcy filing by AIG wouldn’t necessarily include operating units, such as its profitable life insurance, property and casualty insurance, and aircraft leasing businesses.
If New York Insurance Commissioner Eric Dinallo were to declare AIG insolvent, the insurer could be liquidated, which could cause delays for policyholders awaiting payments on insurance claims, according to the New York Liquidation Bureau.
“The Federal Reserve is the only one with the balance sheet and wherewithal to deal with AIG’s problems,” said Keith Wirtz, chief investment officer of Fifth Third Asset Management in Cincinnati. Intervention “would be a huge relief,” he said.
The Fed declined to comment. AIG and Dinallo did not immediately return calls seeking comment.
Monday’s downgrades by the three major credit rating agencies will make it much more difficult for AIG Chief Executive Robert Willumstad to raise cash, and could trigger demands that the company come up with nearly $20 billion.
AIG late Sunday had asked the Fed for help, including a possible “bridge” loan to tide it over while it pursues asset sales and capital raising.
The central bank pushed J.P. Morgan Chase & Co and Morgan Stanley to try to put together a credit facility of $70 billion to $75 billion for New York-based AIG, a person familiar with the matter said on Monday.
“It’s in our national interest that AIG survive,” said Maurice “Hank” Greenberg, a former AIG chairman and a major investor in AIG. He told CNBC there could be “systemic risks” if AIG’s trading partners try to get out of their contracts.
Asked if an AIG bankruptcy were possible, he said if the company doesn’t get a bridge loan, new capital or relief from rating agencies, “then there’s no alternative, and that would be a disaster.”
