Probe sends AIG shares down more than 20 percent

CHARLOTTE, N.C. (AP) — American International Group Inc. may have agreed to take the U.S. government up on a two-year, $85 billion loan to help stave off bankruptcy, but now the nation’s largest insurer faces an FBI investigation.

The news sent AIG shares down more than 20 percent Wednesday afternoon.

Law enforcement officials said Tuesday that the FBI was investigating the New York-based insurer for potential fraud, as well as mortgage finance companies Fannie Mae and Freddie Mac, and investment bank Lehman Brothers Holdings Inc.

The inquiries will focus on the financial institutions and the individuals who ran them, a senior law enforcement official said.

The law enforcement officials spoke on condition of anonymity because the investigations are ongoing and are in the very early stages.

The four financial institutions’ recent travails helped trigger the government’s $700 billion bailout plan, which continued to be discussed on Capitol Hill on Wednesday. Lehman Brothers filed for bankruptcy and the government has already taken over Fannie Mae and Freddie Mac.

AIG spokesman Joseph Norton said Wednesday the company did not have details on the FBI investigation, but said “of course we will cooperate.”

All four companies saw their stock prices plummet this year, as they struggled to survive under the weight of mounting losses tied to bad bets on complex mortgage-related securities.

AIG shares, which lost $1.04, or 20.8 percent, to $3.96 in afternoon trading Wednesday, traded as high as $70.13 last October, at the beginning of the credit crisis.

Late Tuesday, AIG said it signed a definitive agreement with the Federal Reserve Bank of New York for the deal, which was hammered out last week. A final agreement could be filed as early by end of the week, Norton said.

The agreement provides a two-year, $85 billion emergency loan at an interest rate of about 11.5 percent to AIG, which teetered on the edge of failure because of stresses caused by the collapse of the subprime mortgage market and the credit crunch that ensued.

In return, the government will get a 79.9 percent stake in AIG.

The agreement leaves “AIG essentially nationalized,” Bijan Moazami, an analyst at Friedman, Billings, Ramsey, wrote in a note to investors on Wednesday. “Shareholder efforts to prevent the government from taking an equity stake in AIG will prove fruitless.”

Some of AIG’s shareholders had wanted to help the company raise enough money to avoid taking the loan and ceding a majority stake in the company.