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Record bailout in AIG increase

The Fed and Treasury will give the beleaguered insurance giant $150 billion. The new package came as the firm posted a large quarterly loss.

An American International Group office in New York. The original rescue in September wasn't enough to stabilize the company.
An American International Group office in New York. The original rescue in September wasn't enough to stabilize the company.Read moreMARK LENNIHAN / Associated Press, file

WASHINGTON - In a record bailout of a private company, the government yesterday increased to more than $150 billion a financial-rescue package for troubled insurance giant American International Group Inc., including $40 billion for partial ownership of the company.

The action, announced by the Federal Reserve and the Treasury Department, was taken as it became increasingly clear that an original financial lifeline thrown to AIG in September would be insufficient to stabilize the teetering company.

All told, the moves boost aid to the company to $152.5 billion. Fed officials, however, expressed confidence that the money would be repaid to taxpayers.

The $40 billion infusion comes from the recently enacted $700 billion financial bailout package authorized by Congress. The government is buying preferred shares of AIG stock, giving taxpayers an ownership stake in the company. In turn, restrictions will be placed on executive compensation at the firm.

As part of the new arrangement, the Federal Reserve is reducing an $85 billion loan it had made available to AIG to $60 billion. The Fed also is replacing a separate $37.8 billion loan to the insurance company with a $52.5 billion aid package.

The actions were needed to "keep the company strong and [to] facilitate its ability to complete its restructuring process successfully," the Federal Reserve said.

The new package "will allow AIG to continue to restructure themselves in a way that will not hurt the overall economy. AIG is a large, interconnected firm," said White House press secretary Dana Perino.

Shares of AIG added 17 cents to close at $2.28 on the New York Stock Exchange. The company's stock has traded between $1.25 and $62.30 in the last year.

The AIG rescue marks the first time that money from the $700 billion bailout package Congress enacted last month has gone to any company other than a bank.

Until yesterday, all of AIG's bailout relief was coming from the Fed.

The restructuring provides AIG with easier terms on the original Fed loan. The new package reduces the interest rate AIG will pay and will extend the loan term to five years from two, reducing the need for AIG to sell off business lines and other assets at firesale prices to repay the government.

Also yesterday, the New York company said it lost $24.47 billion, or $9.05 per share, in the third quarter after a profit of $3.09 billion, or $1.19 per share, in the 2007 period.