America Nationalizes AIG Group

The government’s plan to nationalize the American International Group came about after the insurance giant’s top management rebuffed an offer by its famed founder, Maurice Greenberg, to help save the troubled firm.In a dramatic reversal last night, the Federal Reserve will rescue the firm from collapse by loaning it $85 billion in exchange for an 80% stake in the company.Word of the government’s deal with AIG followed the release of a letter from Mr. Greenberg, who stepped down as head of the company in 2005 amid allegations of fraud, to Chief Executive Robert Willumstad. Mr. Greenberg wrote that he was “truly bewildered at the unwillingness of you and the Board to accept my help.” While the letter only referred to an offer of advice, Mr. Greenberg also filed a document with the Securities and Exchange Commission yesterday indicating he was considering taking over the company.AIG declined to comment.The Fed’s bailout of AIG would again redefine the circumstances under which the government may lend a helping hand to Wall Street firms. While it offered billions of dollars to backstop J.P. Morgan Chase’s acquisition of Bear Sterns and to save the mortgage giants Fannie Mae and Freddie Mac, it refused to aid Lehman Brothers.While Lehman is facing one of the biggest bankruptcies in American history, a bright spot emerged yesterday, when the British bank Barclays PLC agreed to buy its trading and investment banking divisions for about $2 billion, saving up to 10,000 jobs.Employees rejoiced after receiving word that Lehman’s investment banking and cash marketing operations were to be rescued, with bankers singing “God Save the Queen” and opening bottles of Champagne on the trading floor.“I have hopes that all those jobs will be saved and that the Lehman building will continue to be occupied,” Mayor Bloomberg said at a press conference, adding that the Barclay’s deal “will be a godsend here in the city. It will mean most of those jobs are protected, not all but most.”Barclays walked out of talks to buy the company last week, but had a change of heart after Lehman filed for Chapter 11. Barclays can now acquire the profitable parts of the company — including its merger and debt advisory services — without assuming the toxic assets, including soured mortgage debt.“Barclays is happy to buy it out of bankruptcy because they can buy it free and clear,” a bankruptcy law professor at the University of Texas in Austin, Jay Westbrook, said. “It’s a way of a getting a clean buy, where you’re not encumbered by all the bad parts, and you get all the good parts.”The deal makes Barclays, Britain’s third-largest bank, one of the few institutions to benefit from the mortgage market disaster that has reshaped Wall Street. Another benefactor is Bank of America, which bought Merrill Lynch over the weekend.Reporters and tourists descended on Lehman’s headquarters yesterday, snapping photographs. A 23-year-old trader at Lehman, Alex Flamm, said there’s excitement about the Barclay deal, despite continued uncertainty.“People were depressed, but I think they are starting to be a little more optimistic,” he said, adding that there was still a chance that he will be able to keep his job.A small army of creditors who must now jockey to recover the money that Lehman owes them was less optimistic. Last night, hundreds of somber-faced creditors and investors gathered at the Helmsley Park Lane Hotel on Central Park South to form a committee to help the company through its bankruptcy. A line snaked through the second floor of the hotel, with many people’s eyes glued to their BlackBerries, seeking the latest developments.In a press conference last night, Governor Paterson lauded the AIG deal, noting that state revenues will be affected by the “paradigm shift” occurring in financial markets.“The decision tonight by the federal government to provide assistance to AIG will help stabilize our precarious financial markets during what has been a tumultuous period of uncertainty in our economy,” he said in a prepared statement.

America Nationalizes AIG Group

America Nationalizes AIG Group

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