AIG Draws Down $70 Billion of Government Loan, Shares Fall
By: JUAN LAGORIO and SAVIO D’SOUZA
Reuters
October 10, 2008

NEW YORK (Reuters) - American International Group Inc's (AIG.N) shares fell 15 percent on Friday amid mounting liquidity concerns after the insurer drew on $9 billion from a government loan in the last week. AIG, crippled by losses on bad mortgage bets, has borrowed $70.3 billion as of October 8, including $9 billion in the last week, under a U.S. government bailout plan, according to Federal Reserve statistics released on Thursday.

The U.S. government had originally said it would loan AIG, once the world's biggest insurer, $85 billion, but increased the amount to $122.8 billion on Wednesday as the company struggles to sell assets to pay off the loan before the credit turmoil makes buyers harder to come by. Analysts have estimated AIG's balance sheet deteriorated after it clinched the government loan on September 16, as financial markets around the world have sunk, battered by the worst credit crisis since the Great Depression.

"This is no longer about fundamental values, it's about liquidity," said Marshall Sonenshine, chairman of Sonenshine Partners LLC. AIG shares lost one-fourth of their value just on Thursday and 43 percent this week, as the global financial outlook deteriorates rapidly. The Wall Street Journal reported on Friday that a team from the Federal Reserve Bank of New York and outside experts hired by the Fed were trying to assess how money is flowing within and from the company.

The Fed also has been sending personnel to AIG divisions and Chief Executive Edward Liddy and a top bank-supervision executive from the Fed talk many times a day, the paper said. The lion's share of the Fed's original loan was toward providing collateral to AIG's trading partners on credit default swaps, and covering losses in its securities-lending program, the paper added. AIG refused to comment on the Journal's report. The insurer's shares fell 16.3 percent to $2.00 at noon on the New York Stock Exchange.

Sonenshine Partners is a leading independent investment bank focused on providing integrated strategic, financial and corporate advisory services.  The firm was founded in 2000 and is headquartered in New York City.