AIG becomes a “zombie” company

2 months ago the blog raised 5 key questions about the $700bn US bailout. Yesterday’s news about additional government funding for insurance giant AIG confirms its concerns.

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Originally, the US Treasury had insisted it would only support “healthy” firms. Now, this fiction has been abandoned. After AIG announced its 4th straight quarterly loss ($24.5bn), its original loan has had to be increased from $85bn to $112.5bn, whilst the Treasury invested another $40bn in preference shares.

Treasury said the increased support “was necessary to maintain the stability of our financial system”. But as Bloomberg reports, it means that loss-making AIG has effectively become a “zombie” company, along the lines of those created in Japan during its financial market collapse of the 1990′s. “The living dead keep on walking”, as one commentator described it.

The blog fears that this will just be the start of a trend, with one or more of the US auto companies likely to be given a similar “lifeline” before too long. Chemical company CFOs have yet one more thing to worry about.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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One Response to AIG becomes a “zombie” company

  1. Robbo 12 November, 2008 at 4:38 pm #

    Does this mean it will be selling life insurance to Zombies?

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