American International Group Inc. (AIG) , the insurer deemed too important to fail, will get as much as US$30 billion in new government capital in a revised bailout after posting the worst loss by a US corporation.

The insurer, first saved from collapse in September with a package that grew to $150 billion last year, had to ask for help again after failing to sell enough subsidiaries to repay the government. Banks relied on AIG to back more than $300 billion of assets through derivative contracts as of September 30, making the company a “systemically significant failing institution” that has to be propped up, according to the Treasury.

“The government has accepted all the downside with little chance of upside,” said Phillip Phan, professor of management at the Johns Hopkins Carey Business School in Baltimore, before the announcement. “They are trying to protect the global financial system from a complete meltdown.”

AIG will pay down the federal loan, valued at about $38.9 billion on December 31, partly by turning over its two largest international life insurance units, which will be put in trusts. The company will also give the government rights to the cash flow from tens of thousands of life insurance policies.

Help on the way

The company may warrant “possibly further government support, if markets do not stabilize and improve,” the Treasury and Federal Reserve said in a separate statement.

The insurer gained 11 cents to 53 cents Monday in early New York trading. AIG has plunged 99 percent in the past 12 months.

The role of the US has shifted from that of short-term lender – entitled to interest at the three-month London interbank offered rate plus 8.5 percent for a two-year loan under the first bailout – to a longer-term equity investor.

Former AIG CEO Maurice “Hank” Greenberg had said terms of the original loan were too expensive to allow the company to recover.

“We priced their capital punitively and forced them to sell things fast; that has not worked either so we are having to pump in more capital,” said Haag Sherman, who helps oversee $8 billion as chief investment officer of Houston-based Salient Partners. “This probably will not be the last time AIG has to come to the trough.”

AIG wrote down the value of assets including credit-default swaps and commercial mortgage-backed securities by $25.9 billion and had costs of about $6.9 billion tied to repaying the government in the quarter. The firm also took a charge of about $21 billion related to taxes. For the year, AIG lost $99.3 billion, compared with profit of $6.2 billion in 2007.

Source: Bloomberg