AIG’s Collapse Would Have Impact Around the Globe

Erik Holm and Christine Richard
BLOOMBERG
Tuesday, September 16, 2008

Sept. 16 (Bloomberg) — A collapse of American International Group Inc., the insurer seeking to raise as much as $80 billion, would have consequences for financial firms around the globe, analysts and investors said.

Wall Street’s top firms, and the biggest companies in Europe and Asia, have bought protection on $441 billion of fixed-income assets from AIG to guard their investments against potential bankruptcies. A failure by New York-based AIG may cause those protections to vanish. AIG also insures some of the largest assets in the world, doing business in more than 100 countries.

“They have tentacles into everything, and they are certainly critical to the ongoing health of the financial markets, or lack of health,” Anton Schutz, president of Mendon Capital Advisors Corp. in Rochester, New York, said in an interview today with Bloomberg Television.

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Wall Street’s largest firms met at the New York Federal Reserve for a fifth day today, discussing ways to save AIG, said a spokesman for the New York Fed. AIG, with $1 trillion in assets, piled up net losses totaling $18.5 billion in the past three quarters on writedowns tied to the collapse of the U.S. subprime mortgage market.

“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.”

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