Next, AIG Seeks $40B in Federal Loan

American International Group Inc. (AIG), the largest U.S. insurer by assets, fell by half in New York trading as the company failed to present a plan to raise capital and stave off credit downgrades.  
  
AIG, seeking to raise $20 billion in capital and sell $20 billion of assets, rejected investments from buyout firms KKR & Co., TPG Inc. and J.C. Flowers & Co., people familiar with the talks said. AIG instead sought a $40 billion bridge loan from the Federal Reserve, the "New York Times" reported, citing an unnamed person. The shares plunged $6.25 to $5.89 at 9:42 a.m. in New York Stock Exchange composite trading.  
  
Warrren Buffett, chairman of Berkshire Hathaway Inc., "is thought to be in talks'' with AIG about a possible investment, the Insurance Insider reported today, citing unidentified sources. A Berkshire spokeswoman didn't return a message seeking comment, and AIG spokesman Nicholas Ashooh had no comment.  
  
"People are afraid of what they are not hearing from the company,'' Robert Bolton, managing director at Mendon Capital Advisors Corp., said today in a Bloomberg Television interview. "The only thing people have to trade on right now are the rumors, and they are coming up with their own conclusions.''  
  
Chief Executive Officer Robert Willumstad is under pressure to raise capital after three quarterly losses totaling $18.5 billion and Lehman Brothers Holdings Inc. collapsed after failing to secure a lifeline. Investors are concerned the New York-based insurer can't raise enough cash to withstand further write-downs from credit-default swaps, contracts AIG sold to protect fixed- income investors.   
  
AIG may report write-downs of $30 billion resulting in its "worst quarter yet'' if Lehman's bankruptcy leads to distressed sales of mortgage assets, providing lower market values for AIG's holdings, Citigroup Inc. analyst Joshua Shanker said today in a note. He downgraded AIG to "hold'' from "buy.''  
  
Standard & Poor's said Sept. 12 it may downgrade AIG's credit ratings because the share declines may crimp the insurer's access to capital.  
  
AIG had fallen 79 percent this year before today, making it the worst performer in the Dow Jones Industrial Average.  
  
"AIG could be a much bigger problem than, say, Lehman,'' which filed for bankruptcy protection today, said Marc Faber, managing director of Marc Faber Ltd., on Bloomberg Television.