After the government’s initial rescue plan failed to stabilize the company, AIG will sell $40 billion in preferred shares to the U.S. Treasury, and the Federal Reserve will open two new emergency loan units to finance the company’s securities, the company and government announced.
“These new measures establish a more durable capital structure and resolve liquidity issues” and “protect the interests of U.S. government and taxpayers,” a statement from the AIG said, adding that the new sale will be less costly for the company than the Federal Reserve’s first $150 billion bailout package on Sept. 16.
The lender posted a $24.5 billion third-quarter loss — its fourth-straight quarterly deficit — Monday morning.
The government’s latest move with AIG came after leaders of the world’s 20 largest lenders met in Brazil over the weekend to strategize against a global recession. World markets were up following the meeting, with Asian markets receiving the biggest boost.
On Sunday, China announced a massive $586 billion bailout to support local businesses and infrastructure projects. Spending on health care, environmental protection and education will also increase, said Chinese Premier Wen Jiabao, who is also China’s top economic official. The stimulus package will be used by 2010, the state council said Sunday.
“We must implement the measures to ensure a fast and stable economic development,” he said Monday, adding that the Chinese economy, which thrives on exports, is intricately linked to ailing foreign markets, according to Bloomberg.
The International Monetary Fund said China accounted for 27 percent of global economic growth, the highest of any nation, in the last year.
After the G-20 conference, markets in China and Japan surged, with Japan’s Nikkei index jumping nearly 6 percent and gaining more than 500 points in the first hour of trading, the Associated Press reported. The Nikkei ended up 5.8 percent at 9,081.43 Monday.
In U.S. markets, General Electric Co. and Caterpillar Inc. rose more than 2 percent, according to Bloomberg, while Citigroup Inc. rose 4 percent. AIG’s stock price rose 22 percent following the announcement of more government help.
Financial experts hoped the gains signaled that increased government intervention have begun to turn around the dwindling economy.
“There is a lot of money coming into the system, and eventually it has to start working,” said fund manager at Christiana Bank & Trust Co. Thomas Nyheim. “The government is taking a much more proactive role.”
The Dow Jones industrial average was up nearly a half percent at 8,985.47, but the Nasdaq was off more than 0.3 percent 1642.15.