And how would you like your AIGs cooked this morning, sir

Sunny side up or scrambled, it will take some hard-boiled types to survive this one.

Image credit FCIT



AIG: The company at the heart of the world's financial system

Despite its low profile, AIG is the 18th largest company in the world and arguably the largest insurance and financial services firm. without knowing it, millions of us have links to American International Group, ranging from the warranty on our fridge to the aircraft which have flown us on holiday.

Its diverse assets also include the Stowe Mountain ski resort in Vermont, several American ports and a share of London City Airport. The firm was founded in 1919 when American Cornelius Vander Starr set up an insurance company in Shanghai, the first Westerner to do so.

He gradually expanded into Europe, South America and the Middle East, before handing over the reins to his chief representative in the US, Maurice “Hank” Greenberg in 1968.

Major San Francisco Bay Area insurance brokerages including ABD/Wells Fargo and Aon Risk Services were caught up Tuesday in the drama surrounding the fate of troubled insurance giant AIG.

AIG's Collapse May Be Felt By Companies Worldwide

Wall Street's top firms, and the biggest companies in Europe and Asia, have bought protection on $441 billion of fixed-income assets from AIG to guard their investments against potential bankruptcies. A failure by New York-based AIG may result in $180 billion of losses to financial institutions, RBC Capital Markets analyst Hank Calenti said in a report today.

"They have tentacles into everything, and they are certainly critical to the ongoing health of the financial markets, or lack of health," Anton Schutz, president of Mendon Capital Advisors Corp. in Rochester, New York, said in an interview today with Bloomberg Television.

It sells protection against some of the biggest risks, insuring planes and commercial shipping and providing coverage against terrorist attacks.

AIG Global Real Estate's portfolio includes over 53 million square feet of property in more than 50 countries, the company said on its Web site.

Lehman Brothers Holdings Inc.'s London landlord, Songbird Estates Plc, said rent payments on the bank's offices in the Canary Wharf financial district are insured by AIG.

AIG is the second-largest property and casualty insurer and the seventh-largest life insurer in the U.S.

The company insures high-end homes through its Private Client Group and sells auto coverage online through AIG Direct.

AIG provides coverage for offshore oil drilling platforms in the Gulf of Mexico, warrantees for televisions in Brazil, and insurance that complies with Islamic law in Bahrain.

"AIG poses a systemic risk because it's a large counterparty in the financial system," said Prasad Patkar, who helps manage the equivalent of $1.8 billion at Platypus Asset Management in Sydney.

The collapse of American International Group Inc. could be a drag on the entire aerospace industry if the insurance giant can't find a buyer for its aircraft-leasing business.

Knock-on effect of AIG collapse

AIG is not just an American company. It operates in more than 130 countries worldwide and is very active in Britain. It is the top seller of investment bonds in Britain.

AIG is such a big company - it insures everything from loans to local authorities in America to bonds bought and sold in the London market. It also reinsurers other companies’ risks.

Why AIG matters to you

AIG is by far the world's largest insurer and its stock is found in many mutual funds, including any S&P 500 index fund. It is also a component of the Dow Jones industrial average. All by itself, it's been responsible for dragging the Dow down more than 400 points so far this year.

AIG is also active in the business of credit default swaps, complicated financial instruments used by investors to protect themselves from bond defaults. Lehman Brothers (LEH, Fortune 500) was another major player in that field. If both go away, it would create a tighter credit market for consumers and businesses trying to get loans.

The AIG Crisis, By the Numbers

$1.04 trillion: The size of AIG’s balance sheet as of June 30, down from $1.06 trillion in December.

$712 billion: The approximate size of AIG Investments, a 500-staff fund-management arm that puts money into private-equity funds and so-called funds of funds.

$15.2 billion: The amount of excess capital AIG had going into the second quarter, after a $20.2 billion capital raising that helped fund a $5 billion shortfall.

$0: The amount of excess capital now on hand.

$14.5 billion: The amount of money AIG needs to pay to its trading partners as a result of Monday night’s credit-rating downgrades by Moody’s Investors Service, Standard & Poor’s Ratings Services and Fitch.

$20 billion: The amount of cash AIG could pull from its own insurance subsidiaries as a result of a change in New York State insurance regulations announced Monday.

$23.8 billion: Year to date unrealized losses on AIG’s total portfolio, according to Morgan Stanley estimates last week.

AIG, From `Excess Capital,' Buybacks to Cash Shortage: Timeline

The generosity, constructive criticism and altruism of Hank Greenberg, as disclosed in this letter to the AIG Chairman of the Board, pointing out that "you and the Board have presided over the virtual destruction of shareholder value."

Greenberg resigned as chief executive [in 2005] after AIG was accused of exaggerating its financial performance. He was succeeded by Essex boy Martin Sullivan, 53, who had joined the company’s London office in 1970 as a 17-year-old clerk before working his way up to the boardroom.

News from September 16th, Stateside time, as The Bell rings:

European Stocks Tumble on AIG Debt Rating Cuts; UBS, HBOS Drop

Asian stocks rebounded in U.S. trading, led by financial shares, on speculation the Federal Reserve may extend loans to American International Group Inc. to prevent the collapse of the largest U.S. insurer.

From MarketBeat: Without a doubt, the market showed a bit of resiliency Tuesday, but the tensions have not been removed from the market. Most of them center, like a black cloud, over the headquarters of American International Group Inc., which fell 15% amid a swirl of rumors of government assistance, or perhaps no government assistance, in a package of loans to help the company, which reportedly seeks some unholy amount of capital in order to buy time. The dogmatic types who flinch at the idea of any bailout in the past — be it Bear Stearns Cos. or Lehman Brothers Holdings — are a bit more flexible on this company, because, as Marino Marin, managing director of investment bank Gruppo, Levey, puts it, “the option of a non-intervention in AIG could be really disastrous.” Choosing not to decide to do something is still a choice, and investors feel that in this case, that’s not a choice open to the markets. The emerging thinking is that the government will have to intervene, because nobody else is left: sovereign wealth funds have had enough of throwing good money after bad into U.S. financial institutions, private-equity buyers have no interest, and Warren Buffet only has so much, after all. “The problem with any of the financial institutions that are supposed to be involved is that their balance sheets stink too,” says Greg Church, founder and CEO of Church Capital Management, who holds shares of AIG. “There has to be a partnership — you’ve got to give these guys time to unload assets.” Ultimately a deal that gives the government warrants to purchase equity, similar to the Chrysler bailout, says Robert Brusca of Fact and Opinion Economics. “A plan to save AIG must include the government getting a big portion of the upside potential on its shares as well as a pledge for change,” he writes.

But after The Bell:

Both Senate Banking leaders cool to U.S. help for AIG

Connecticut Democratic Sen. Christopher Dodd, chairman of the financial market oversight panel, said he is generally "skeptical" about any potential federal bailout or bridge loan for AIG. He told reporters he wants the Bush administration to consult with him.... I want to have them come to me....

Alabama Sen. Richard Shelby, the top Republican on committee, said he flatly opposes any federal bailout for AIG.

A U.S. government source said on Tuesday that no federal agency has legal authority to place troubled insurance company American International Group Inc under conservatorship.... Insurance companies are typically regulated by states, not by federal agencies

U.S. stock-index futures retreated after the Reserve Primary Fund fell below $1 a share and investors speculated American International Group Inc. will be seized by the government.

But then, a flash of swords drawn and the drum of hoofs sounds from the Calvary:

Fed Readies A.I.G. Loan of $85 Billion for an 80% Stake

American International Group Inc., the biggest U.S. insurer by assets, has been offered an $85 billion U.S. loan in return for an 80 percent stake in the company, according to a person familiar with the situation.

In an extraordinary turn, the Federal Reserve was close to a deal Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan, according to people briefed on the negotiations.

All of A.I.G.’s assets would be pledged to secure the loan, these people said, and in return, the Fed would receive warrants that could be exchanged for an ownership stake. Stock of existing shareholders would be diluted, but not wiped out.

The Fed’s action came after Treasury Secretary Henry M. Paulson and Ben S. Bernanke, president of the Federal Reserve, went to Capitol Hill on Tuesday night to meet with House and Senate leaders.

Attending the meeting on the Capitol Hill were Democratic Senate leaders that included Charles E. Schumer of New York, Richard J. Durbin of Illinois, Christopher J. Dodd of Connecticut and Kent Conrad of North Dakota A contingent of Republicans was led by Mitch McConnell of Kentucky, the minority leader, and included Richard C. Shelby of Alabama, Jon Kyl of Arizona and Judd Gregg of New Hampshire. House leaders included John Boehner of Ohio, the Republican leader; Spencer Bachus, Republican of Alabama; and Barney Frank, Democrat of Massachusetts. Members of the leaders’ staffs were asked to leave the meeting shortly after it began.

Until this week, it would have been unthinkable for the Federal Reserve to bail out an insurance company, and A.I.G.’s request for help from the Fed of just a few days ago was rebuffed.

And by 10:45 a.m. Sydney/Guam time on Sept 17, Reuters is reporting:

Japanese stocks rose 1.1 percent on Wednesday, as investors took hope that troubled U.S. insurer American International Group may avoid the same fate as
Lehman Brothers. Financial shares such as top lender Mitsubishi UFJ Financial Group <8306.t> were awash with buy orders.

And separately:

Hopes for a rescue grew after a source briefed on the matter told Reuters several hours after the market close that the Federal Reserve was negotiating roughly $85 billion in financing to keep AIG from collapsing. Index futures pointed to a higher market open on Wednesday after the news.

And would Sir care to have another Bloody Mary with those AIGs?