Page last updated at 23:08 GMT, Monday, 15 September 2008 00:08 UK

AIG set for $20bn financing plan

The AIG logo on a Manchester United shirt
AIG shares have fallen around 80% since the beginning of the year.

The State of New York has announced a "multi-billion dollar financing plan" to stabilise the finances of American International Group (AIG).

Under the plan, the insurance firm will be able to gain access to some $20bn (11.1bn) by transferring assets in subsidiaries to the parent company.

The move required state approval but Governor David Paterson said no federal or state funds would be used.

Shares of AIG ended 60.8% lower, to close at $4.76 Monday.

Before Mr Paterson's comments they had fallen as much as 71%.

"Wall Street's continuing problems should serve as a stark reminder that this recession is far from over. New York State has taken the first step towards helping to stabilise AIG, which is otherwise a very healthy company," said Mr Paterson.

"On a state level, we were able to reach a market-based solution that will stabilize AIG at no cost to New York taxpayers," he said.

He added that policyholders and their insurance policies would be safe.

AIG is under pressure to raise capital after posting three quarterly losses in a row totalling $18.5bn (10.3bn).

The New York Times reported over the weekend that AIG was seeking a $40bn emergency bridging loan from the Federal Reserve, the US central bank.

AIG's stock has fallen following losses tied to worsening credit markets.

'Unprecedented days'

AIG, like many other financial institutions, has suffered because of investments hit by the housing slowdown and an increase in defaults.

The slide in AIG's share price came after Lehman Brothers filed for bankruptcy and Merrill Lynch was sold to Bank of America.

"AIG was until recently the world's largest insurance company. It provides over a hundred billion dollars of capital to banks, and it is in trouble too," said Jon Moulton at Alchemy Partners.

"These really are unprecedented days."

AIG sponsors English football club Manchester United.

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