The government intervention would be the fourth time that the United States has had to step in to help A.I.G., the giant insurer, avert bankruptcy. The government already owns nearly 80 percent of the insurer’s holding company as a result of the earlier interventions, which included a $60 billion loan, a $40 billion purchase of preferred shares and $50 billion to soak up the company’s toxic assets.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal officials, who worked feverishly over the weekend to complete the restructuring, said they thought they had no choice but to prop up A.I.G., because its business and trading activities are so intricately woven through the world’s banking system.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In the quarter, A.I.G. took a $21 billion charge related to taxes and wrote down $25.9 billion in assets, including mortgage-back securities and credit-default swaps.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit rating agencies like Moody’s, Fitch Ratings and Standard & Poor’s had been preparing to sharply downgrade A.I.G.’s credit ratings on Monday because of the record quarterly loss. That would have forced A.I.G. to default on its debt, threatening to set off shock waves throughout the financial system as banks holding A.I.G. derivatives contracts would probably demand cash collateral and other payments from A.I.G. during a time when it has little to spare.

The major credit-rating agencies were briefed on the pending deal between A.I.G. and the government, the people involved in the talks said, and they have committed not to downgrade the company’s debt as a result.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under the deal, the government will commit $30 billion in cash to A.I.G. from the Troubled Asset Relief Program, should the company need it, the Treasury Department said in a statement. A.I.G. is not expected to draw down the money immediately, but the government’s commitment was enough to satisfy the rating agencies.

Another part of the deal would allow A.I.G. to exchange $40 billion in preferred nonvoting shares, which paid a 10 percent dividend, for new preferred shares that do not require a dividend. That would save A.I.G. $4 billion annually.

To further ease A.I.G.’s debt burden, instead of paying back $38 billion in cash with interest that it has used from a federal credit line, government will convert that into equity in two of the insurer’s subsidiaries in Asia — American International Assurance and the American Life Insurance Company.

Both units are performing well. This would give the government direct ownership in those subsidiaries and provide saleable assets to American taxpayers even if the A.I.G. holding company were to default on its loans.