AIG gets $150 billion government bailout

By Mark Felsenthal and Lilla Zuill

WASHINGTON/NEW YORK (Reuters) - The U.S. government restructured its bailout of American International Group (AIG.N), raising the package to a record $150 billion (96 billion pounds) with easier terms, after a smaller rescue plan failed to stabilise the ailing insurance giant.

The U.S. Federal Reserve and the Treasury Department announced the new plan on Monday as AIG reported a record third-quarter loss of $24.47 billion, largely from write-downs of investments.

The new package, at least $27 billion more than was previously extended, will leave the government exposed to billions of dollars of potential losses.

AIG, once the world's largest insurer by market value, nearly collapsed after being forced to post large amounts of collateral related to exposure to complex derivatives known as credit default swaps.

Many of these securities were linked to the performance of residential mortgages, and lost value as the U.S. housing downturn mushroomed into a global credit crisis.

"We cannot continue to hemorrhage cash in the two areas of securities lending and credit default swaps," Chief Executive Edward Liddy said on a conference call. "We need to stop that, and we need to stop it now."

Under the new plan, the government will get a $40 billion equity stake in AIG, spend as much as $30 billion on securities underlying the insurer's credit default swaps, and spend up to $22.5 billion to buy residential mortgage securities.

It will also reduce a previously announced credit line to $60 billion from $85 billion, and lower interest rates on borrowings. AIG will also accept curbs on executive pay, including a freeze of bonuses for its top 70 executives.