The US Federal Reserve Bank will lend up to US$85 billion to the American International Group (AIG) in its latest act to save the ailing US financial system.
The board determined that, in current circumstances, a disorderly failure of AIG could add to “already significant levels of financial market fragility and lead to substantially higher borrowing costs, reduced household wealth, and materially weaker economic performance”.
The loan has a two-year term and is expected to be repaid from the proceeds of the sale of the firm’s assets.
The US Government will receive a 79.9 per cent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders.
The Federal Reserve said in its statement on the matter that “the interests of taxpayers are protected by key terms of the loan”, as are the interests of the US Government.
“The loan is collateralised by all the assets of AIG, and of its primary non-regulated subsidiaries,” the statement said. “These assets include the stock of substantially all of the regulated subsidiaries.”
The Federal Reserve said the purpose of the liquidity facility is to assist AIG in meeting its obligations.
“This loan will facilitate a process under which AIG will sell certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.”
