AIG deal saves company $4 billion a year

The U.S. government’s fourth rescue of insurance giant American International Group includes switching preferred stock to common shares, the government said.

Similar to the deal offered banks last week, the government will allow AIG to convert the government’s preferred share purchase — in this case, $40 billion’s worth — to common stock, which would save AIG $4 billion annually in dividend payments, The New York Times reported Monday.

The government also Sunday said it would allow AIG to borrow an additional $30 billion from the Troubled Asset Relief Program. Before Sunday, the government had committed $150 billion to rescue AIG.

In Sunday’s deal, the government would take control of two Asian AIG subsidiaries, the American Life Insurance Co. and American International Assurance, which had been for sale recently but didn’t attract a buyer, the Times said.

There was little time to spare in striking a deal. AIG reported a quarterly loss of $62 billion Monday, the largest in corporate history. In the quarter, AIG lost $60 billion in balance sheet write downs on devalued assets. About $2 billion represents a cash loss, the Times said.