AIG in talks with U.S. government, sees $60 billion loss: source
American International Group Inc, rescued twice last year by the U.S. government, is asking for more aid and bracing for a fourth-quarter loss of roughly $60 billion, a source familiar with the matter said. It would be the biggest loss in a quarter in corporate history.
The $60 billion would exceed Time Warner’s $54 billion single-quarter loss in 2002 and dwarf the $24.5 billion loss AIG posted in the third quarter, when the government increased its rescue package for the insurer to about $150 billion.
By contrast, two analysts polled by Reuters Estimates have forecast on average a net loss of $5.46 billion.
The latest round of talks with the government include the possibility of additional funds for the insurer and trading debt for equity, another source said on Monday.
The situation is fluid and other options are being discussed, this second source said, adding that it was unclear where the talks would lead.
AIG may look to convert preferred shares held by the government into common stock, Bloomberg reported, citing an unnamed source.
The discussions are going on as U.S. financial authorities try to put out other fires, as well. Citigroup Inc, whose stock has been pounded by fears that the government may seize the bank and wipe out shareholders, is also in talks to give the government a larger stake, a person familiar with the matter told Reuters.
CNBC, which first reported AIG’s discussions, said the losses to be announced next Monday were due to writedowns on commercial real estate and other assets personal loans for people with bad credit. It said the insurer’s board will meet next Sunday to work out an agreement with the government.
In case they do not reach a deal, AIG’s lawyers at Weil, Gotshal & Manges LLP were preparing for the possibility of bankruptcy, CNBC said.
But the first source told Reuters that while AIG has retained Weil Gotshal, the insurer has no plans to file for bankruptcy.
“Is it likely that $60 billion more of capital has been destroyed? Or is it likely that they are just accounting for that which already happened?” said Thomas Russo, a partner at Gardner, Russo & Gardner, which manages more than $2 billion. “I suspect it’s more of the latter than the former.”
AIG said in a statement it had not yet reported results and would provide an update when it does so in the near future.
“We continue to work with the U.S. government to evaluate potential new alternatives for addressing AIG’s financial challenges,” AIG said.
U.S. Treasury officials declined to comment. Weil could not be reached immediately for comment.
AIG shares closed down 1 cent at 53 cents on the New York Stock Exchange on Monday.
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