As expected, AIG (AIG) has worked out a new bailout deal designed to relieve if of the burdens of its last bailout. The details are pretty much what was reported last night including more money, $40 billion from the TARP, and a significantly reduced interest rate. It’s Now LIBOR + 3.0 rather than LIBOR + 8.0. So much for this awesome return the taxpayer would be getting.
Here’s how the whole thing is being spun to make it sound like something other than just throwing more money onto the fire: The new scheme, says AIG, wasn’t available at the time the first package was assembled in September, and so the original, crude $85 billion bridge loan was the only solution at the time. Now with new policy tools, the Fed and AIG are able to craft something more sophisticated and benefitting the situation.
And here’s the obligatory nod to making taxpayers whole:
Taxpayers will benefit from the transactions with AIG as follows: fees, interest and repayment of the FRBNY loan in full, payment of a 10% coupon on the newly issued preferred shares, cash payments from the assets purchased by the two financing entities and potential asset appreciation in the underlying securities held by those entities. Taxpayers will own 77.9% of the equity of AIG and will hold warrants to purchase an additional 2% equity interest, and so will benefit from any future appreciation in AIG shares.
It feels almost silly to talk about AIG as if it were a real company with real earnings, but yes, the company also reported quarterly figures this morning. It lost $24.47 billion in the quarter, or $9.05 per share. Here’s where the bulk of the damage came from
Included in the third quarter 2008 net loss and adjusted net loss was a pre-tax charge of approximately $7.05 billion ($4.59 billion after tax) for a net unrealized market valuation loss related to the AIG Financial Products Corp. (AIGFP) super senior credit default swap portfolio and a pre-tax net loss of $1.09 billion ($705 million after tax) for a credit valuation adjustment on AIGFP’s assets and liabilities in accordance with FAS 157 and FAS 159.
Additionally, third quarter 2008 results included pre-tax net realised capital losses of $18.31 billion ($15.06 billion after tax) arising primarily from other-than-temporary impairment charges on AIG’s investment portfolio. The Securities Lending program accounted for $11.7 billion of these losses, of which $6.9 billion resulted from AIG’s change in intent to hold these securities to recovery as the program winds down. The other-than-temporary impairment charges also included $3.9 billion resulting from the severe, rapid decline in fair value of securities outside of the Securities Lending program, for which AIG concluded it could not reasonably assert that the impairment period would be temporary.
We’ll be covering the company’s conference call LIVE at 8:30 so join as then for more discussion.
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