EMERGENCY: AIG CRASHING
September 16th, 2008Via: Bloomberg:
American International Group Inc.’s ratings cut drove the cost of default protection on Wall Street banks to a record on concern that the insurer needs more cash to back $441 billion of credit derivatives.
Credit-default swaps on Morgan Stanley, Goldman Sachs Group Inc., Wachovia Corp. and Citigroup Inc. all traded at record highs as investors sought to hedge against losses on financial companies and to replace hedges they had with Lehman Brothers Holdings Inc., which filed for bankruptcy early yesterday. Contracts on AIG, the biggest U.S. insurer, and Washington Mutual Inc., the biggest U.S. savings and loan, rose further into distressed levels on concern ratings downgrades will cripple the companies.
AIG may have to post as much as $17 billion in collateral after the company was downgraded yesterday, UBS AG analysts said. The biggest U.S. insurer by assets is seeking as much as $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co., after posting $18 billion in losses over the past three quarters, according to two people familiar with the situation.
“If AIG goes under, there could be a domino effect,” said Andrea Cicione, a credit strategist at BNP Paribas SA in London. “AIG is very connected to the financial system and it is very connected to the real economy.”
