AIG Has Drop in Fed Borrowing

In an unexpected development, the Federal Reserve is indicating AIG's (AIG Quote) borrowing against credit lines was down $6.8 billion to $83.5 billion as of Wednesday night.

The reduction may not mean anything, if this is only in the securities lending program, and we still might find out that the core $85 billion loan facility has had additional drawdowns. However, at this stage, it could be a positive move reflective of the capital markets loosening up.

Last week, AIG had only about eight weeks of cash left if the company continued to draw on the Fed loan. Even if AIG has stopped the bleeding, it must take immediate steps to sell some of its assets, including the aircraft-leasing business, and start to repay the Fed loans.

The appointment last week of Paula Rosput Reynolds as chief restructuring officer at least suggests that AIG is taking steps to dispose of assets, but the time to act is now, not when cash has been depleted to nothing.

Prudential PLC (PUK Quote), whose CEO, Mark Tucker, indicated an interest in certain assets of AIG, has kept quiet recently about the possibility of a purchase. Now, MetLife (MET Quote) is thought to have emerged as a possible suitor.

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