Global markets welcome AIG bail out

Insurance giant, AIG, has been bailed out by the US Federal Reserve after an $85 billion (£48 billion) rescue package

The news has been welcomed by global stock markets after two days of panic selling following the collapse of US investment banking giant, Lehman Brothers.

There were fears that AIG was heading the same way after credit ratings agencies Moody’s and Standard & Poor’s downgraded ratings on AIG debt.

On Monday, AIG 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). The insurer not only provides debt insurance for asset managers and hedge funds but also have investment in asset-backed securities that contain bad debt.

AIG will get an $85 billion loan, in return for an 80% public stake in the firm.

There have been reports stating that should AIG collapse, it would have had a far greater impact on financial markets than the demise of Lehman Brothers.

Following the bail out, the board of the Federal Reserve said it had the ‘full support of the Treasury Department‘ adding that the secured loan included conditions designed to protect ‘the interests of the US government and taxpayers‘.

The rescue package has also been welcomed by The White House after it said ‘the deal was made in the interest of promoting stability in financial markets and limiting damage to the broader economy‘.

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

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