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New worries about health of AIG; Insurer needed an additional $37.8 billion to return cash to its clients

Concerns about the health of American International Group Inc. were renewed Thursday, a day after the insurance giant said it would receive an additional $37.8 billion loan from the Federal Reserve.

"The bottom line is, they need more liquidity than they thought," said Mark Lane, an analyst for William Blair and Co. The new loan is on top of a two-year, $85 billion loan AIG received last month from the Fed in an effort to stay in business.

The new loan will help AIG cover requests from clients to redeem borrowed securities. In the past, these securities were previously loaned by AIG's insurance company subsidiaries to third parties in return for cash. The cash would then be reinvested in an attempt to increase returns.

Now, Lane said, clients who borrowed securities want to return them to AIG and get their cash back.

Amid the continuing credit crisis, financial firms have been hoarding cash for fear of future losses on investments   Read Full Article...