Document Type
Case Study
JEL Codes
G01, G28
Abstract
In September 2008, the Federal Reserve Bank of New York (FRBNY) extended an $85 billion credit line to AIG to address its liquidity stresses, but AIG’s balance sheet remained under pressure. The insurance giant was projected to report large third-quarter losses and was at risk of being downgraded by major credit rating agencies. For these reasons, in early November 2008, the US Treasury invested $40 billion of Troubled Assets Relief Program (TARP) funds into AIG in exchange for 4 million shares of AIG Series D preferred stock and a warrant to purchase AIG common stock. The investment helped repay a portion of AIG’s debt to the FRBNY, restructured the terms of the credit line, and deleveraged AIG’s balance sheet. With similar concerns arising at the end of the first quarter of 2009, Treasury made a second TARP investment of $30 billion in exchange for 300,000 shares of Series F preferred stock and another common stock warrant. Treasury converted all the preferred stock from its TARP investments into AIG common stock in January 2011 and sold it over the following two years.
Recommended Citation
Buchholtz, Alec and Lawson, Aidan
(2021)
"The Rescue of American International Group Module C: AIG Investment Program,"
Journal of Financial Crises: Vol. 3
:
Iss. 1, 82-118.
Available at:
https://elischolar.library.yale.edu/journal-of-financial-crises/vol3/iss1/4
Date Revised
2021-04-16
Included in
Corporate Finance Commons, Economic History Commons, Economic Policy Commons, Finance Commons, Finance and Financial Management Commons, Insurance Commons, Other Public Affairs, Public Policy and Public Administration Commons, Public Economics Commons