AIG Bailout Stabilizes Global Markets

Global financial markets stabilized yesterday after the U.S. Federal Reserve Board announced an emergency loan of 85 billion U.S. dollars for the largest U.S. largest insurance company American International Group.

The bailout also eased jitters in the Korean financial market as stock prices soared and the won rebounded against the dollar.

The Federal Reserve Bank of New York will loan 85 billion dollars to AIG in exchange for a stake of 79.9 percent in the company.

AIG will have a 24-month line of credit and interest will accrue at the steep rate of three-month Libor plus 8.5 percent.

AIG said it will repay the loan by selling off businesses and the company’s CEO Robert Willumstad will step down.

The Fed’s Federal Open Market Committee froze the key interest rate at two percent.

As for Lehman Brothers, which filed for bankruptcy, British bank Barclays will buy core assets of the U.S. investment bank`s businesses.

Wall Street had fluctuated Tuesday after news broke of AIG’s financial problems and the Fed announced a rate freeze. The Dow Jones finally jumped 141.51 points or 1.3 percent from Monday to close at 11,059.02, as investors had high expectations for the bailout.

In Korea, the benchmark stock index KOSPI surged 37.51 points (2.70 percent) to close at 1,425.26, regaining the 1,400 mark in a day. Foreign investors held a buying spree for the first time in three days, with the amount of net buying reaching 102.9 billion won (92.2 million dollars).

Similarly, Korea’s tech-heavy KOSDAQ jumped 15.64 points (3.64 percent) to close at 444.93.

The won also recorded its biggest single-day gain against the dollar in more than a decade. The Korean currency finished at 1,116 to the greenback, posting a surge of 44 points, the highest since an appreciation of 82 points on March 23, 1998.

higgledy@donga.com jefflee@donga.com