AIG Records Historic Loss; FDIC Raises Bank FeesInsurance behemoth American International Group recorded a $61.7 billion quarterly loss - the biggest in corporate history -- and the Treasury and the Federal Reserve now say they will take part in AIG's restructuring plan to prevent the collapse of the insurance company.
The government will commit another $30 billion to the firm in exchange for cumulative preferred stock. "Given the systemic risk AIG continues to pose and the fragility of the markets today, the potential cost to the economy and the taxpayer of government inaction would be extremely high," Treasury said in its statement.
AIG's loss for the fourth quarter was compounded by ongoing problems in the credit markets, and its loss for the year totaled $99 billion.
Where the added $30 billion from the government will come from is expected to be from the second half of the $700 billion bank bailout fund passed last fall by Congress. Treasury says that the additional funds given to the insurance fund is expected to stabilize AIG and will prevent broader fallout across the financial system. The tally so far in money given to AIG by the government since September is $150 billion.
FDIC Raises Bank Fees, Emergency Premium
The Federal Deposit Insurance Corporation (FDIC) says it will raise the fees paid by financial institutions to its deposit insurance fund, and also will levy an emergency premium to collect $27 billion in 2009 to add to its fund as it faces more bank failures.
The FDIC says it expects the bank failures will cost the insurance fund $65 billion through 2013, up from an earlier estimate of $40 billion. The 16 bank failures of 2009 follow the 25 from 2008 and are a reflection of the recession, rising unemployment, increased numbers of mortgage foreclosures and loan defaults.
The current economic crisis has caused the insurance fund to drop to its lowest level in almost 25 years, according to the FDIC. The emergency premium to be paid by the more than 8,500 federally insured institutions will be 20 cents for every $100 of their insured deposits. This is up from the average premium of 6.3 cents paid last year. The 25 U.S. banks that failed last year lowered the amount in the deposit insurance fund to $18.9 billion, the lowest level since 1987.
Wall Street Braces for Economic News
Investors on Wall Street this week will be eyeing the week's economic news, as the Dow and S & P 500 are nearing levels not seen in the past 12 years. The reports on housing, consumer spending, government spending, the bank rescue efforts, manufacturing and employment levels will put pressure on the market.
The reaction of investors to the news will be critical as signs that the market is stabilizing or whether more uncertainty is ahead. The S&P 500 and Dow industrials are around 50 percent off of their highs from October 2007.