AIG Shares Plunge 25% After Insurer Gets More Cash

American International Group shares fell sharply a day after the insurer said it would receive up to $37.8 billion in additional cash from the Federal Reserve.

Under the new plan, the Fed Bank of New York will take up to $37.8 billion in investment-grade, fixed-income securities from AIG in exchange for cash, allowing the company to replenish liquidity used in settling transactions with counterparties.

The deal came only three weeks after AIG , once the world's largest insurer, received an emergency government loan worth $85 billion as losses in its financial products unit drove it to the brink of collapse.

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In the same period, financial markets sank, wiping out banks and forcing government bailouts around the world.

"On their balance sheet they have assets that have sensibility to market moves; and when the market went through the last three weeks of price declines, some of their assets continued to have pricing pressure down, and that was forcing their need to source new capital," said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management.

Last week, AIG announced it was selling most of its assets to repay the government loan, and said there were many buyers interested; but no deal has been closed yet.

"The government has effectively provided them support for $110 billion, I think they have exhausted that avenue and so I think as they move forward their options have diminished," Wirtz said.

AIG shares closed down 80 cents or 25  percent to $2.39 in New York Thursday.

Copyright 2008 Reuters. Click for restrictions.