US government boosts aid package for AIG
Posted: 10 November 2008 2343 hrs

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WASHINGTON: The US government on Monday announced a dramatic boost in a restructured aid package for insurer American International Group, taking the total from 85 billion dollars to more than 150 billion.

Under the restructuring, the US Treasury will purchase 40 billion dollars of newly-issued AIG preferred shares under the Troubled Asset Relief Program.

The Federal Reserve, which in September said it would offer the embattled insurer 85 billion dollars, will cut that loan to 60 billion dollars.

Meanwhile it will create two additional facilities: so-called debt "swaps" worth about 30 billion dollars, and commercial debt purchases worth about 22.5 billion dollars.

The government moved to increase aid to AIG to a total of 150 billion dollars as the troubled insurer announced 24.5 billion dollars in net losses in the third quarter of the year.

The US Federal Reserve Board has authorised the New York Fed to establish two new lending facilities relating to AIG.

In the first new facility, the New York Fed will lend up to 22.5 billion dollars to a newly formed limited liability company (LLC) to fund its purchase of residential mortgage-backed securities from AIG.

In the second, the New York Fed will lend up to 30 billion dollars to another new LLC for it to buy other debts.

"These new measures establish a more durable capital structure, resolve liquidity issues, facilitate AIG's execution of its plan to sell certain of its businesses in an orderly manner," the Federal Reserve and the Treasury Department said in the statement.

They will also "promote market stability, and protect the interests of the US government and taxpayers." - AFP/de