AIG Stock: What You Need to Know
09/17/08 - 04:27 PM EDT
TSC Staff
Updated from September 16
How much do you really know about the current news surrounding insurance giant AIG (AIG Quote - Cramer on AIG - Stock Picks)? Get up to speed with TheStreet.com: From AIG Bankruptcy Threat Forced Fed's Hand: AIG will receive an $85 billion bridge loan from the Federal Reserve aimed at keeping the giant insurer out of bankruptcy and preventing the acceleration of a world credit crisis. "The [Federal Reserve] Board determined that, in current circumstances, a disorderly failure of AIG could add to already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance," the central bank said in statement posted on its Web site at 9 p.m. EDT Tuesday. "This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy." The Fed said the AIG facility has a 24-month term. The Fed said that "the interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. "The loan is expected to be repaid from the proceeds of the sale of the firm's assets. The U.S. government will receive a 79.9% equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders," the statement said. As part of the deal, Treasury Secretary Henry Paulson insisted that AIG's CEO executive, Robert Willumstad, step aside, the Wall Street Journal reports. Willumstad will be succeeded by Edward Liddy, the former head of insurer Allstate (ALL Quote - Cramer on ALL - Stock Picks). A bankruptcy filing by AIG would have been significantly worse than that of Lehman Brothers (LEH Quote - Cramer on LEH - Stock Picks) in its impact on other financial institutions around the globe, according to several market participants, including the heads of two of the world's largest bond funds. Read the full version of AIG Bankruptcy Threat Forced Fed's Hand. From Congress Mulls '80s-Style Resolution Trust: Sen. Chris Dodd (D., Conn.), chairman of Senate Committee on Banking, and Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, have both mentioned the idea of reviving an institution from the 1980s, the Resolution Trust Corporation. In short, it's starting to feel like the S&L crisis of some 20 years ago. Resolution Trust Corporation (RTC) was created in response the savings-and-loan crisis that gripped the country in the late 1980s. By the time the smoke cleared, RTC had closed 747 institutions involving $394 billion in assets. In 1995, the RTC folded into the Federal Deposit Insurance Corporation (FDIC). Read the full version of From Congress Mulls '80s-Style Resolution Trust. From AIG Asset Swap Off the Table: American International Group won't be raiding its insurance subsidiaries for cash after all. The New York State Insurance Department confirmed Wednesday that the proposed asset swap announced by Gov. David Paterson on Monday is no longer an option following the $85 billion bailout by the Federal Reserve. "It died last night," said David Neustadt, the department's deputy superintendent for public information. "The asset swap will not now take place." The death of the plan is good news for policyholders, who were left in the dark about their policies as the National Association of Insurance Commissioners, known as NAIC, announced yesterday afternoon that the insurance commissioners of New York and Pennsylvania were working with AIG. The insurer would have swapped its illiquid assets for its subsidiaries' liquid assets. Read the full version of AIG Asset Swap Off the Table. Plus, don't miss States Mobilize to Protect AIG Customers. From Cramer: Better After the AIG Save: You have to understand that we simply wouldn't be able to open most financials if AIG had failed. Our new sovereign wealth fund, the Federal Reserve, came up with an elegant plan to take over AIG and make good on what would have been broken guarantees that would have caused worldwide capital calls and bank closings that honestly would have made the Great Depression seem like the Little Depression, World War I to our new World War II. That's worth avoiding. Read the full version of Cramer: Better After the AIG Save. From Cramer: We're in 1987 Mode: In 1987, we believed that all the major firms in the brokerage industry were going to go belly-up... It felt like the end of the world. It wasn't. But it was eerie. We are in that mode again... In many ways, this time it is worse than 1987 because AIG and Fannie (FNM Quote - Cramer on FNM - Stock Picks) and Freddie (FRE Quote - Cramer on FRE - Stock Picks) and Lehman (LEH Quote - Cramer on LEH - Stock Picks) still haven't been sorted through. We have too many aftershocks that we must worry about, and there is too much damage in the system. Plus, there is now a sense that the U.S. government has become a cartoon government with a cartoon currency and a cartoon Fed. No rate cut? Oh my! How wrong!! I think the Fed is in shock that we are not doing better today, but what they failed to recognize is that the erosion in confidence from their worrying about inflation is staggering. I want to make it clear: In many ways this period right now is worse than 1987... Right now we are experiencing a true meltdown in financials. There is very little hope at this moment that we can turn it around ourselves. I think that unless we get some outside help from the Middle East or China, it won't end. Our government has made so many mistakes, our Fed has made so many mistakes, that I can understand why people would panic. I simply have to believe, though, that there is outside capital that wants in. I believe that money does exist that can come in and stabilize things. But I also want to point out that without it, we are most likely not done going down. Read the full version of Cramer: We're in 1987 Mode. From Crescenzi: Fed's Treasuries Running Out: The Fed had close to $800 billion of Treasuries at the start of the year. Last week the Fed had $479 billion in Treasuries, of which $200 billion was pledged to the term securities lending facility, the facility whereby the Fed lends its Treasuries to dealers in exchange for agencies, mortgage-backed securities and other non-Treasury collateral. If the Fed lends $85 billion to AIG, the Fed's Treasury holdings will be down to $195 billion. The tally is so low that it is becoming imperative for the Fed to take actions to enlarge its balance sheet. Read the full version of Crescenzi: Fed's Treasuries Running Out. Cramer on AIG Rescue (Video, Sept. 17) Cramer: "There is just a tremendous disconnect between how much better today is than yesterday, but that's okay... That's where the great opportunities come from." To watch the video, click the player below:
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