AIG May Get $37.8 Billion From Fed for More Liquidity (Update1)

By Scott Lanman and Hugh Son

Oct. 8 (Bloomberg) -- The Federal Reserve will provide as much as $37.8 billion in additional liquidity to American International Group Inc.'s regulated insurance units after rescuing the company with an $85 billion loan last month.

The Fed board used emergency powers to authorize the New York Fed to borrow up to $37.8 billion in investment-grade, fixed-income securities from AIG in return for cash collateral, the Fed said in a statement. The action will help AIG ``replenish liquidity'' and provide ``enhanced credit protection to the New York Fed and U.S. taxpayers,'' the Fed said.

Chief Executive Officer Edward Liddy, appointed by the U.S. to run the firm, has been trying to sell units to repay the original loan, which he had said was big enough. AIG, running short on cash after three quarterly losses of more than $18 billion, agreed Sept. 16 to a government takeover in which the U.S. received a 79.9 percent stake.

The collapse of the New York-based insurer was the subject of Congressional hearings yesterday, which triggered criticism of the company for spending $440,000 on a California conference at a beachside resort less than a week after AIG was rescued.

To contact the reporters on this story: Scott Lanman in Washington at slanman@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net

Last Updated: October 8, 2008 17:10 EDT

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