After its shares declined 31 percent on September 12, American International Group Inc. (AIG) responded to the concerns of its investors by organizing a survival plan. AIG is reported to be prepared to sell off some of its most valuable assets, raise more capital and seek assistance from the Federal Reserve in order to prevent a downgrade by major credit rating firms. AIG executives are concerned that a downgrade could cause the insurer to collapse. So far this year, AIG has raised $20 billion in new capital and seeks to raise an additional $40 billion to avoid a downgrade.

As the company worked during the weekend of September 12 to increase its finances, AIG refused a capital infusion offer from a group of private equity firms led by J.C. Flowers & Co. because an option in the offer would have given the firms control of the company.  Under certain conditions, this option would have allowed the firms to acquire AIG for $8 billion, approximately 25 percent of AIG’s current market value.  AIG Chief Executive Robert Willumstad took the unusual step of asking New York Federal Reserve President Timothy Geithner if the Fed would guarantee some asset sales. AIG has made an unprecedented approach to the Federal Reserve seeking $40 billion in short-term financing, the New York Times said.

The Fed normally oversees monetary policy and supervision of banks, but CNBC said AIG was seeking the funds as a temporary measure and planned to repay the Fed with the proceeds from asset sales. AIG officials did not immediately respond to requests for comment. The company, until recently the world's biggest insurer by market capitalization, has been attempting to hammer out an emergency strategic plan after its shares fell nearly 50 percent last week on fears it faced a liquidity crisis.

From news reports in the Wall Street Journal, New York Times, CNBC and Reuters.

September 16, 2008