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Shares in AIG are suspended after 74 per cent crash
Robert Lea, City Correspondent16.09.08
Shares in giant American insurer AIG were suspended on Wall Street today after a 74 per cent crash in its stock indicated the business is spiralling toward collapse.
Just a day after the bankruptcy of Lehman Brothers and the emergency rescue of Merrill Lynch, AIG - once the world's largest insurer - appeared to be on the verge of failure despite demands by its former boss Hank Greenberg that the American government save the company.
Many warned there was just one day left to save it from collapse. New York governor David Paterson said: "We are in a terrible situation if we let the world's largest industrial and commercial insurance company go down."
In emotional statements amid another panic-stricken share-trading session in New York, Mr Greenberg said AIG was a "national treasure" which could not be allowed to fail. Mr Greenberg - most of whose multi-billion-dollar fortune is tied up in AIG - said if it were allowed to go bankrupt it would cause a "systemic problem" for the US financial system.
Mr Paterson explained that without a major capital-raising deal to cover its liabilities and ensure the liquidity of its finances, AIG would not be able to benefit from the $20 billion lifeline thrown by state regulators late last night.
The lifeline only saw AIG plunge into further turmoil as major credit-rating agencies downgraded the firm. It means AIG - which has effectively been acting as the insurer to the US financial system - is unlikely to be able to pay out on insurance claims.
Analysts fear AIG, which employs hundreds in Britain from headquarters in Croydon, is all but finished. It is as important to the US as the country's biggest bank, Citibank.
Credit Suisse analyst Thomas Gallagher said: "While there is a chance the company can work its way through its liquidity problems if it can secure substantial bridge financing, we think this will be challenging to execute."
Rating agencies Standard & Poor, Moody's and Fitch expressed grave fears over AIG's massive exposure - hundreds of billions of dollars - to the collapsed US sub-prime housing market and failing financial institutions like Lehman Brothers. In Britain, AIG sponsors Manchester United, insures cars, homes and pets and offers life insurance through its AIG Direct company. It also acts as a major commercial insurer.
Ken Lewis, chief executive of the Bank of America, which yesterday rescued Merrill Lynch, said: "I don't know of a major bank that doesn't have some significant exposure to AIG."
It is AIG's involvement in the US housing market and the complex web of insurance for mortgages sold to Americans that has sent it into crisis.
Reader views (3)
This is the end of highly leveraged financial instruments. The served a few very well, smoothed uncertainty out for some, but proved to be unlimited risk gambling casinos for too many. Roll on a more sober attitude to risk, valuations and returns.
- Nick London, London
God bless America - The creator of 'high capitalism', profit above everything, including people and morals. I loved everything about the US through the 1940's, 50's, 60's but with the collapse of the Soviet Union, America was the one and only great Empire left in the world. Power does corrupt, just like the last days of the British Raj. The Sun sets on all empires, the US being the latest. Lets hope that we can borrow money from the Chinese at competitive rates..ie the next Empire in the making.
- Bondy, london
If this fails the Dow will fall 1,000 points plus. The Fed will have to get involved here if this story is true.
Just to think only a few weeks ago those 'uber bulls' on CNBC were saying that the credit crisis was as good as over. Then we had the expectation of the Fed raising rates, now it is almost certain that rates will fall. CNBC liars and pumpers.
This is getting worse and worse. I think I might get into gold. That way I can have something of physical value and not an account in a dodgy bank!
- Mgrelton, London
