Fears over insurance giant AIG

Yesterday saw the collapse of Wall Street giant, Lehman Brothers, which was forced to file for bankruptcy after announcing it had failed to find a solution to its problems after a weekend of rescue talks with Barclays and Bank of America.

In a bid to allay fears in the UK markets, the Bank of England injected an extra £20 billion into the short-term money markets to protect against fears that financial markets will come to a standstill should other banks be weary of the misfortune of Lehman.

The news sent shares plummeting worldwide and there are now fears about the future of US insurance giant AIG.

Credit ratings agencies Moody’s and Standard & Poor’s downgraded ratings on AIG debt yesterday, making it more difficult for the group to borrow money.

Yesterday, the insurance giant saw its shares plunge 61% after it asked the Federal Reserve for a bridging loan of $40 billion (£22 billion) in a bid to shore up its balance sheet.

However, the insurer was granted a $20 billion lifeline after being told by New York Governor, David Paterson, that it could borrow the money from AIG subsidiaries.

The insurer has posted three consecutive quarterly losses totalling $18.5 billion (£10.3 billion).

AIG is renowned in the UK as the sponsor of premiership football team, Manchester United, and is the biggest shirt sponsorship in English football.

The insurer was signed by Manchester United in April 2006 after Vodafone terminated their £9 million-a-year deal. The club would only say it was ‘in close contact‘ with its sponsor.

The group is also well known for selling insurance policies through retailing giants, Argos and Boots.

According to Matthew Bishop of the Economist, the consequences of the firm’s collapse would be devastating for the financial system.

AIG has a workforce of over 100,000 people in 130 countries and has a larger exposure to real estate and the credit default swap market than other insurers.

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