Bailout boost in £25bn AIG deal with Fed

By This Is Money
Updated:

 

Struggling insurance giant AIG is selling $40bn (£25bn) of shares to the Federal Reserve as US authorities today unveiled drastically revised bailout terms.

AIG Tower Screen

Bailout: The US government is expected to $40bn of AIG preferred shares

The new deal allows the Fed to slash the credit facility it is offering AIG to $60bn from $85bn.

But the US central bank is expanding the size of the bailout to an estimated $150bn to buy up some of AIG's toxic mortgage-backed securities and collaterised debt obligations.

US authorities also ordered strict new limits on bonuses for AIG staff.

The Fed confirmed it will cut the interest rate on loans to AIG to 3.5% above Libor from the earlier figure of 8.5% above.

Shares in AIG leapt 22% on the improved terms but are still down nearly 95% on a year ago. AIG today announced a $24.47bn loss in the third quarter of 2008.

The Fed is making more funds available because it regards AIG as 'systemically important'.

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