AIG Seeks Investors, Deals With Harsh Ratings Cuts

New York (HedgeCo.Net) – In an effort to stave off bailout rumors, the Federal Reserve is urging American International Group Inc. to find private investors and warns that they should not expect a loan from the central bank.  However, talks have become increasingly difficult in the wake of all three major ratings agencies casting a shadow of doubt of the company.

AIG had its key credit ratings cut late on Monday to A minus, down from AA minus by Standard & Poors, due to the huge losses the company has endured from its mortgage-backed investments and credit derivatives.  S & P warns that they could face further ratings cuts, unless they ”implement further liquidity options” and/or complete ”the successful sale of at least a portion of its business assets.”

Meanwhile, Moody’s cut AIG’s ratings to A2, down from AA3 while Fitch Ratings cut their ratings to A, down from double A minus.

The ratings cut could potential cost AIG billions from collateral payments on its derivatives trades.

Governor David Patterson facilitated a deal between AIG and New York state insurance regulators when he allowed the company access to $20 billion of assets from its subsidiaries to use as collateral against any needed loans.  Patterson is hoping this will prevent a repeat of what happened with Lehman Brothers Holding Inc. and Bear Stearns. 

Shares of AIG were trading as low as $3.50 on Monday and closing at $4.76, down over 60 percent.

Julie Scuderi
Senior Editor for HedgeCo.Net

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