AIG shares fall as it tries to shore up books

NEW YORK — Its future in the balance, American International Group Inc. huddled Tuesday with Federal Reserve officials to find the cash the huge insurer needs to stay in business and avoid igniting more global financial turmoil.

The New York Fed, which is the Fed's point bank on financial crises, was involved in talks regarding AIG, a person with knowledge of the matter said. The person asked not to be identified by name because the talks are ongoing.

As the talks went on, AIG shares were getting pummeled by investors who were worried that there would be no assistance for AIG and that it may have to file for bankruptcy.

A CNBC report saying the Federal Reserve was considering providing financing to AIG brought shares off their intraday lows, although they later retreated again. The shares revived again in midafternoon trading.

Fed spokeswoman Michelle Smith said she could not make any comment on the report.

Treasury spokeswoman Brookly McLaughlin said that Treasury officials remained focused on market developments but she refused to comment on the AIG report.

AIG shares were down $1.09, or 23.2 percent, to $3.67 in late afternoon trading, rebounding from an intraday low of $1.25. Shares have traded as high as $70.13 during the past year.

Just days ago, though, U.S. Treasury Secretary Henry Paulson said the agency would not help Lehman Brothers Holdings Inc. with the kind of taxpayer-backed fundiong that JPMorgan Chase & Co. received six months ago to buy ailing Bear Stearns.

Lehman, the nation's fourth largest investment banker, filed for bankruptcy on Monday.

New York-based AIG operates a range of insurance and financial services businesses ranging from property, casualty, auto and life insurance to annuity and investment services. Those operations are considered healthy and policyholders would likely be covered even if AIG were to file for bankruptcy protection, said Donald Light, a senior analyst with Celent.

The problems at AIG stem from the more exotic financial products it offers, including some that insure risky debt and bonds against default. The value of those products have deteriorated amid the downturn in the credit markets over the past year.

A failure by AIG would send shockwaves through an already battered financial system because of how many banks and other financial firms that have exposure to AIG through complex insurance contracts.