Tottering US parent company casts long shadow on Indian operations
NEW YORK: After Lehman’s shock bankruptcy, all eyes are on troubled insurer American International Group (AIG). The Federal Reserve has made it clear that it would not bail out the insurer or provide the guarantees it needed to stay afloat. Instead, it is pressuring a consortium of investment banks to put together around $75 billion in loans to prop up the insurance giant.
However, AIG’s debt instruments have been lowered by credit rating agencies, threatening efforts to raise funds to keep the company afloat and roiling global financial markets.
S&P lowered AIG’s long-term counterparty rating three grades to A- because of “reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses.” Moody’s cut AIG’s senior unsecured debt two grades to A2. Fitch Ratings lowered its assessment to A from AA-.
As concerns about AIG’s scramble for capital mounted, the Wall Street Journal reported the possibility of a private sector fund to backstop AIG.
The Federal Reserve, which is being advised by Morgan Stanley, held a meeting to discuss AIG’s prospects at the central bank’s offices in New York on Monday with AIG executives, bankers and state regulators.
“With strong encouragement from the Fed, Goldman Sachs Group and JPMorgan Chase & Co are seeking to raise $70 billion to $75 billion in loans to help prop up AIG,” reported the Journal. Word of AIG’s efforts to borrow that much sent the stock market crashing wildly in the last hour of trading, making Monday the blackest day for Wall Street since markets reopened after the September 11 attacks in 2001.
If AIG can’t come up with the cash, the company could be forced into bankruptcy proceedings like Lehman Brothers. Fitch Ratings downgraded AIG by two notches once markets closed on Monday.
US media also reported that private-equity firms such as TPG and Kohlberg Kravis Roberts & Co are more interested in buying specific AIG assets rather than contributing money to a capital infusion.
