The Federal Reserve on Monday gave $150 billion to insurer American International Group Inc (AIG) after an initial bailout attempt failed to stem massive losses. Under the new plan, the government is putting $150 billion at AIG's disposal, $27 billion more than it extended previously. The new package will leave the government exposed to billions of dollars of potential losses. AIG shares rose 24 percent to $2.62 in premarket trade after the new rescue plan was disclosed. The restructured bailout was announced as AIG posted a $24.47 billion third-quarter loss, the largest in the company's 89-year history. The Fed will buy $40 billion of AIG preferred shares through the Treasury's Troubled Asset Relief Program (TARP), lend it $60 billion under a credit facility, and provide $50 billion to buy distressed securities and backstop AIG's securities lending portfolio. The new plan is nearly double the government's initial $85 billion rescue plan for AIG, forged on September 16. The government said its equity stake in the insurer would still be about 80 percent. The preferred shares will carry a dividend of about 10 percent. The United States will charge a lower interest rate on its loan to AIG. AIG, once the world's largest insurer by market value, received the $85 billion bailout financing from the government in September. Last month, $37.8 billion in additional federal funds were put at its disposal under a securities lending agreement. The new plan replaces both of those facilities. AIG Chief Executive Edward Liddy said the terms of the new bailout “create a durable capital structure that will make possible an orderly disposition of certain of AIG's assets” and assure taxpayers are repaid in full with interest. The U.S. Treasury said its $40 billion investment would subject AIG—which it called a “systemically important company”—to the same curbs on executive bonuses and golden parachutes as other financial institutions that receive government capital injections.
