Once AIG goes, its really over!

By Hugh Son


Sept. 16 (Bloomberg) -- American International Group Inc.'s credit ratings were downgraded by Standard & Poor's and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat.

The ratings reductions occurred after two people familiar with the situation said that the biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. to replenish capital.

AIG Chief Executive Officer Robert Willumstad has tried to raise cash to prevent the cuts, which may trigger more than $13 billion in collateral calls from debt investors who bought swaps, the insurer said in an Aug. 6 filing. AIG's shares plunged 61 percent yesterday in New York trading, dragging the company's market value to $12.8 billion.

Wall Street's biggest firms convened at the New York Federal Reserve for a fourth consecutive day, this time to discuss AIG, which sold the banks and other investors protection on $441 billion of fixed-income assets, including $57.8 billion in securities tied to subprime mortgages.

``I don't know of a major bank that doesn't have some significant exposure to AIG,'' said Kenneth Lewis, chief executive officer of Bank of America Corp., in a CNBC interview. An AIG collapse would ``be a much bigger problem than most that we've looked at,'' he said.

AIG has declined 92 percent this year in New York trading, making it the worst performer in the Dow Jones Industrial Average.

Credit Ratings Cut

The MSCI Asia-Pacific Index declined 4.4 percent, the biggest drop since January today, as investors fled to the safety of Treasuries. S&P lowered AIG's long-term counterparty rating three grades to A- from AA-, citing a ``combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses.''

The ratings assessor also lowered AIG's short-term counterparty credit rating by two levels to A-2 from the top A-1+ rating, and cut its counterparty credit and financial strength ratings on most of AIG's insurance operating subsidiaries by three notches to A+ from AA+. The ratings remain on watch for a possible further downgrade, S&P said.

AIG's senior unsecured debt rating was downgraded by Moody's to A2 from Aa3. Moody's said in a statement that its decision was made ``in light of the continuing deterioration in the U.S. housing market and the consequent impact on the group's liquidity and capital position due to its related investment and derivative exposures.'' Moody's placed AIG's long-term and Prime-1 short- term ratings on review for possible downgrades.