CHARLOTTE, N.C. — American International Group said Monday it’s evaluating “potential new alternatives” to tackle the giant insurer’s financial problems.
“We continue to work with the Federal Reserve Bank of New York to evaluate potential new alternatives for addressing AIG’s financial challenges,” AIG spokesman Joseph Norton said. “We will provide a complete update when we report financial results in the near future.”
The comments came after CNBC reported the New York-based insurer will soon report a $60 billion loss and ask for more federal support.
AIG may announce that it is converting the government’s preferred shares into common stock to relieve pressure on the New York-based firm’s liquidity, a person familiar with the situation said.
AIG pays a 10 percent dividend on preferred stock and none on common shares.
“Paying a huge dividend on the preferred only makes you bleed slowly over time, so this would help,” said Robert Haines, an analyst at CreditSights.
AIG is facing a “huge potential loss on their investment portfolio,” which could lead to credit-rating downgrades, he said.
AIG, once the largest insurer by assets, is expected to report a fifth straight quarterly loss, which may cast doubt on whether it can repay the government. Executives at Citigroup, previously the largest bank, also have discussed a share conversion as a way to quell capital-adequacy concerns, The Wall Street Journal reported.
Details of a new rescue package may be announced when AIG posts fourth-quarter results.
The Treasury Department and the Federal Reserve declined to comment.
On the brink of failure in September, AIG was bailed out when the government offered it an $85 billion loan. AIG’s bailout swelled to about $150 billion in November when the Fed and the Treasury stepped in with more cash after it became apparent the insurer needed more funds to stay afloat.
Problems at AIG did not come from its traditional insurance operations but from its financial-services units, primarily its business insuring mortgage-backed securities and other risky debt against default.
If AIG couldn’t make good on its promise to pay back soured debt, investors feared the consequences would pose a threat to the U.S. financial system, leading to the government bailout.
Shares of AIG fell 1 cent to close at 53 cents.
