AIG Rescue Bill Rises to $150bn

The cost of bailing out the stricken US insurer AIG has swollen to around $150bn.

Under a revised package of rescue measures unveiled today, the US government is to alter its loan arrangements with the insurance giant and spend $40bn on new preference shares in the company.

This will leave taxpayers with a 79.9% stake in the company, which almost went bankrupt in September in the immediate aftermath of the Lehman Brothers' collapse.

The package enables AIG to make asset disposals in an orderly fashion. There had been fears that AIG would be forced into a fire sale to pay off an $85bn emergency loan from the Federal Reserve that rescued the company two months ago.

Under the deal, the Fed is swapping that two-year bridge loan for a $60bn five-year loan at a lower rate of interest.

The US Treasury is also making $40bn available from the $700bn Troubled Assets Relief Program to buy preference shares in AIG.

The Fed is putting up more than $50bn to buy credit default swaps and mortgage-backed securities, the assets that drove AIG to the brink of ruin.

AIG's chief executive, Edward Liddy, said the company intended to repay taxpayers "in full with interest".

"This plan contributes to stabilizing the financial system and provides the opportunity for the public to realize gains on its AIG investment in the future," he added in a statement. "These measures will also put AIG on track to emerge as a nimble competitor with good long-term growth prospects."

The deal came as AIG announced a loss of $24.5bn in the third quarter of the year.