North Carolina: American International Group Inc., the world’s largest insurer, was hit by a wave of downgrades by credit-rating agencies worried that the deteriorating housing market is further undermining the company’s battered finances.
All three major agencies Standard & Poor’s, Moody’s Investors Services and Fitch Ratings dropped AIG’s ratings at least two notches late on Monday. While the new ratings are all still considered investment grade, the downgrades add to the pressure on AIG as it seeks billions of dollars to strengthen its balance sheet.
AIG spokesmen did not return calls seeking comment on the impact of the downgrades. But last month, the company estimated in a regulatory filing that a one-notch downgrade of its long-term senior debt ratings by both S&P and Moody’s would force it to post $13.3 billion in extra collateral.
The need for that extra capital would put a constraint on AIG’s day-to-day liquidity position, which is why the company has been seeking new financing or capital investments.
AIG is in a precarious position, in part, because of concerns about its credit ratings and how that would affect its portfolio of financial instruments known as credit default swaps. The swaps are essentially insurance coverage to protect investors against defaulting bonds or debt.
Moody’s said it downgraded AIG “in light of the continuing deterioration in the US housing market and the consequent impact on the group’s liquidity and capital position due to its related investment and derivative exposures.”
AIG has been battered over the past year by billions of dollars of losses tied to deterioration in the mortgage and credit markets. On Monday its shares fell $7.38, or 60.8%, to close at $4.76.
The Federal Reserve has asked Goldman Sachs Group Inc. to work with JPMorgan Chase & Co. about a possible short-term loan to keep AIG in business, according to a person familiar with the request who could not speak publicly because talks were still ongoing. The loan could be for about $70 billion, the person said.
AIG’s chief executive, Robert Willumstad, who has been CEO since June, has indicated he is willing to shed some assets, saying about a month ago that a “less complex AIG would be a better competitor.”