Sunday, March 01, 2009

U.S. Federal Reserve Sends a Signal to Wall Street: If Private Equity Doesn't Want to Buy Your Subsidiary, We'll Buy It From You

AIG is set to announce the largest ever corporate loss by a U.S. company this Monday which some estimate to be approximately 60 billion dollars. According to a 28 Feb CNNFN report:

"AIG will also give the U.S. Federal Reserve ownership interests in American Life Insurance (Alico), which generates more than half of its revenue from Japan, and Hong Kong-based life insurance group American International Assurance Co (AIA) in return for reducing its debt, the source said."

This purchase of these two companies comes on the heels of a massive debt restructuring for AIG where the Fed gives more favorable terms on the credit line extended to AIG saving the company one billion a year in interest expenses.

The Fed is only keeping AIG on life support. Meanwhile, nobody wants to do business with AIG, further compounding AIG's problems. The Fed needs to decided to either let AIG go bankrupt or without equivocation signal that "The Fed will not allow AIG to fail" by finalizing a take over of the company. In my opinion, if the economy continues on its current track, the Fed will be forced into a FINAL decision within the next 13 months.

Here's the full CNNFN article.

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