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The AIG Timeline: From Bailout to Ongoing Support

Posted on 12 Mar 09

Called a “systemically failing institution” by the Treasury, American International Group Inc. (AIG) has had its bailout restructured three times in six months as results deteriorated.

Following is a timeline detailing the insurer’s near collapse, AIG’s statements about its financial health and government efforts to shore up the New York-based company.

Sept. 9, 2008: AIG shares fall 19 percent to $18.37 on the New York Stock Exchange, the biggest drop the since the company went public in 1969, as investment bank Lehman Brothers Holdings Inc.’s failure to raise capital sparks doubts about the insurer’s ability to sell shares or bonds.

Sept. 15: AIG falls 61 percent to $4.76 after the insurer fails to present a plan to raise capital and prevent credit downgrades.

Sept. 16: The U.S. agrees to loan AIG as much as $85 billion in exchange for an 80 percent stake after a Standard & Poor’s downgrade forces the insurer to post collateral to banks that purchased credit-default swaps from the insurer. AIG drops to $3.75.

Sept. 18: Edward Liddy, who ran Allstate Corp. from 1999 to 2006, is approved by AIG’s board as chief executive officer and tells employees he intends to repay the two-year Federal Reserve loan early. The credit line, which entitles the U.S. to interest at the three-month London interbank offered rate plus 8.5 percentage points, is “enough” for AIG, Liddy says.

Oct. 3: Liddy announces plans to sell life insurance operations in the U.S., Europe, Latin America, South Asia and Japan and says AIG was contacted by “numerous” potential bidders.

“The values that we will receive from the assets we intend to dispose will be more than enough to repay the Fed facility,” Liddy says.

Oct. 7: AIG makes $18.7 billion in payments tied to credit- default swaps to banks including Goldman Sachs Group Inc. and Societe Generale SA in the three weeks after the bailout. A person familiar with the bailout outlines the payments in December, asking not to be named because the information is confidential.

Oct. 8: Liddy gets an expanded bailout from the government with authorization for an additional $37.8 billion in liquidity as AIG struggles to meet the demands of customers pulling out of its securities-lending program.

Oct. 22: Liddy tells PBS that the $122.8 billion already offered by the government “may not be enough” to stabilize AIG.

Nov. 7: AIG seeks to modify the terms of its government bailout, extending the duration and lowering the interest rate, according to a person familiar with the situation. Shares close at $2.11.

Nov. 10: Liddy wins a lower interest rate from the government and three extra years to pay back the loan. The rescue package grows to $150 billion and includes a $60 billion loan, a $40 billion capital investment and about $50 billion to buy mortgage-linked assets owned by AIG or guaranteed by the insurer through credit-default swaps.

The aid puts AIG “on the road to recovery,” Liddy tells investors. AIG posts a $24.5 billion third-quarter loss.

“We have great confidence in our ability to sell these remarkable assets,” Liddy tells analysts. “I can’t underscore enough, we have great demand for these various properties. We are probably dealing with, I don’t know, north of 75 or a 100 different people.”

Nov. 25: AIG sets Liddy’s salary at $1 and freezes pay and scraps bonuses for seven top executives.

Dec. 1: Liddy agrees to sell a bank unit serving clients in Asia and the Middle East for about $250 million. The sale is “nothing; it’s a blip” when compared with the loan the insurer must repay, former CEO Maurice “Hank” Greenberg tells CNBC.

Dec. 11: Liddy pledges to repay taxpayers “every single penny we owe them,” while saying the timetable of asset sales may change, citing “challenging times to undertake divestiture.” Shares close at $1.73.

Dec. 22: Liddy tells CNBC, the insurer “would like” to repay the government loan in 2009. AIG agrees to sell its Hartford Steam Boiler subsidiary for $742 million, about a third less than it paid for the unit eight years ago.

Jan. 12. 2009: AIG has enough assets to sell to repay the government loan, Federal Reserve Governor Elizabeth Duke says in a letter to Christopher Dodd, chairman of the Senate Banking Committee.

Jan. 21: AIG’s plane leasing unit is downgraded by Standard & Poor’s, prompting the government to cut lending to the business through the federal commercial-paper program.

Feb. 13: AIG says it sold interests in two contracts tied to natural gas and oil for $60.5 million, bringing the tally from divestitures to about $2.4 billion. AIG shares close at 85 cents.

Feb. 24: Liddy may scrap plans to fund repayment of the bailout through asset sales after failing to find enough promising bidders, according to two people with knowledge of the matter.

March 2: AIG posts a record $61.7 billion fourth-quarter loss and the Treasury agrees to spend as much as $30 billion more on preferred shares. The dividend on preferred stock, previously 10 percent, may fall, the Treasury says.

“Liquidity is not an issue for us now,” Liddy says.

A restructuring of the firm “will take time and possibly further government support, if markets do not stabilize and improve,” the Treasury and Fed say in a statement.

March 3: Fed Chairman Ben S. Bernanke tells a Senate committee that having to rescue the insurer made him “more angry” than any other episode during the financial crisis.

March 5: Senate Banking Committee has a hearing scheduled on the insurer, called, “American International Group: Examining what went wrong, government intervention, and implications for future regulation.”