Leading world insurer AIG close to bankruptcy

New York, Sept 16 (PTI) In the continuing meltdown in the
U.S. financial market, World's largest insurer, American
International Group (A.I.G.) was Tuesday downgraded by credit
rating agencies and was racing against time to find a multi
billion dollar infusion to stay afloat.

Federal reserve officials and two leading banks, JPMorgan
Chase and Goldman Sachs, were negotiating to put together USD
75 billion package to save the insurance giant to stave off
crisis.

AIG has has sought USD 40 billion in bridge loan to stave
off the crisis. But the Feds rebuffed the request and the Wall
Street Journal reported that unless funds were forthcoming
A.I.G. too might follow Lehman Brothers in declaring
bankruptcy which could add to the meltdown of the markets.

A.I.G.'s ills came to fore, when three leading credit
rating agencies -- Standard and Poor's Moody's and Fitch --
lowered the company's credit scores.

The downgrades, financial analysts said would make things
difficult for A.I.G. and the New York Times said it would
force the company to turn over billions of dollars in
collateral to its derivatives' trading partners.

In the face of uncertainty, shares of A.I.G. plummeted
more than 60 percent Monday and the Times quoted two people
briefed on the situation as saying that the company's
potential write offs are mounting and may reach USD 60 billion
to 70 billion.

The Times said that most of A.I.G.'s businesses are
healthy, but its troubles grew from one unit that dealt in
complex debt securities and derivatives and now threatens to
drain cash more quickly than the financing package can be
assembled.

The complex discussions, continued into the night as a
deal was sought before United States markets opened this
morning. It involved New York state regulators, federal
regulators, private equity firms and Wall Street banks that
rely on A.I.G.'s ability to honour its derivatives' contracts,
as they did with Lehman Brothers, the paper said.

"It's not just the failure of one company," Julie A
Grandstaff, vice president and managing director of StanCorp
Investment Advisers was quoted as saying.

"It's the ripple effect of the disappearance of counter
parties" that was spurring urgent efforts to bolster AIG.

The insurer itself has had three chief executives in the
last three and a half years and Times quoted one person
briefed on Monday's discussions as saying its officials
seemed uncertain about how to proceed.

The Fed was not able to provide the USD 40 billion bridge
loan because it oversees banks, not insurers.