From the WSJ:
“American International Group Inc. was facing a severe cash crunch last night as ratings agencies cut the firm’s credit ratings, forcing the giant insurer to raise $14.5 billion to cover its obligations.
With AIG now tottering, a crisis that began with falling home prices and went on to engulf Wall Street has reached one of the world’s largest insurance companies, threatening to intensify the financial storm and greatly complicate the government’s efforts to contain it. The company, whose stock fell 61% yesterday, is such a big player in insuring risk for institutions around the world that its failure could shake the global financial system.
AIG has been scrambling to raise as much as $75 billion to weather the crisis, and people close to the situation said that if the insurer doesn’t secure fresh funding by Wednesday, it may have no choice but to opt for a bankruptcy-court filing.
“The situation is dire,” a person close to AIG said.”
“Ratings agencies had threatened to downgrade the insurance giant’s credit rating by Monday morning, a step that could allow counterparties to A.I.G.’s swap contracts to require A.I.G. to post collateral of up to $13.3 billion. One person close to the firm said that if such an event occurred, A.I.G. might survive for only 48 hours to 72 hours.
The urgency of the talks grew by late Monday as A.M. Best Company, a credit rating organization specialized in insurance and health care companies, downgraded the credit of A.I.G. and several of its major subsidiaries. Fitch Ratings also downgraded A.I.G.’s credit Monday evening.
Standard & Poor’s downgraded its long-term and short-term counterparty ratings on A.I.G. Monday evening. Moody’s also cut A.I.G.’s senior debt rating to a level requiring A.I.G. to post collateral of $1.1 billion.
But none of those downgrades appeared to lead to events requiring A.I.G. to post billions of dollars of collateral to its swap counterparties. Its swap contracts cite downgrades by Moody’s and Standard & Poor’s of A.I.G.’s long-term senior debt ratings, and such changes had not been announced as of Monday evening. Being downgraded by two other widely watched ratings agencies, and having its standing as a counterparty by Standard & Poor’s downgraded, did not bode well for A.I.G., however.
People briefed on the matter said that if JPMorgan and Goldman Sachs were able to raise a $75 billion credit line by Tuesday, it could avert the all-important debt downgrades by Standard & Poor’s and Moody’s. But it was unclear whether they could put together such a complicated package in time.”
As of this writing, the Nikkei is down 5.06%, and the Hang Seng is down 5.81%. Lehman Brothers has started selling large quantities of stuff. And we haven’t even gotten to Washington Mutual yet …