AIG shares tumble as it fights for a lifeline

For the three quarters ended in June, AIG itself has lost about $25 billion in the value of its credit default swaps portfolio.

Late Monday night, all three major agencies — Standard & Poor’s, Moody’s Investors Services and Fitch Ratings — cut AIG’s ratings at least two notches. While the new ratings are all still considered investment grade, the downgrades add to the pressure on AIG as it seeks tens of billions of dollars to strengthen its balance sheet.

“Getting some kind of liquidity facility in the next couple of days will help confidence,” Rodney Clark, a credit analyst at S&P, said in an interview.

AIG spokesmen did not return calls seeking comment on the impact of the downgrades. But last month, the company estimated in a regulatory filing that a one-notch downgrade of its long-term senior debt ratings by both S&P and Moody’s would force it to post $13.3 billion in extra collateral.

The need for that extra capital would put a constraint on AIG’s day-to-day liquidity position, which is why the company has been seeking new financing or capital investments.

“While there is a chance the company can work its way through its liquidity problems if it can secure substantial bridge financing, we think this will be challenging to execute it in the current onerous credit environment,” Credit Suisse analyst Thomas Gallagher wrote in a research note to clients.

In its efforts to improve its liquidity, AIG has already received support from the New York governor and state’s insurance regulator. On Monday, Gov. David Paterson said he would support a measure that allows AIG to use $20 billion of assets held by its subsidiaries to provide cash needed to stay in business.

Wall Street turmoil Bernanke, Paulson: Congress must act now First fear, then loathing, toward Wall Street Bush, Democrats differ on bailout’s passage Last U.S. investment banks to change status How Wall Street met its downfall U.S. offers 4 measures to restore order Vote: Is the government doing enough? Consumers, retailers cautious amid crisis Paulson: Rescue to cost ‘hundreds of billions’ Judge allows Barclays to buy Lehman units U.S. begins backing money-market funds Q&A: What does the crisis mean to you?

Paterson said Tuesday that New York state officials were taking part in the AIG meeting with the Fed.

“While we do not generally support government intervention in these situations, in this case we do support the Federal Reserve being part of a private-sector effort to stabilize AIG,” New York Attorney General Andrew Cuomo said. “Given AIG’s interconnections, its failure would pose serious hardships to many companies and individuals. The Fed’s leadership and collaboration is therefore essential, and I hope they act soon.”

The Fed on Monday asked Goldman Sachs Group Inc. to work with JPMorgan Chase & Co. about a possible short-term loan to keep AIG in business, said a person familiar with the request who could not speak publicly because talks were still ongoing. The loan could be for about $70 billion, the person said.

Tuesday morning, while announcing fiscal third-quarter earnings, Goldman Sachs Chief Financial Officer David Viniar said during a conference call that he was “not going to comment on rumors about where we are in helping AIG.” He said they are “good important clients” but refused to discuss the matter further.

Also in msnbc.com business Your Career: Married to the job, and each other Answer Desk: Qualifying for more jobless benefits Venza sorta-crossover is Toyota’s latest mistake ConsumerMan: Chinese drywall remains a big threat   Video: Nervous retailers begin Christmas countdown

MORE FROM STOCKS & ECONOMY

Stocks & economy Section Front

Stocks end big day at highs for the year   Oil prices top $80 as dollar weighs on markets Aging bull? Stocks may be in for rough ride Wall Street awaits stores’ reports this week Cost of gas nudges up 2 cents in last two weeks Jobless: 10 percent is tougher than it used to be Easing job losses point to wobbly recovery Unemployment rate rises above 10 percent When unemployment last topped 10 percent Obama signs homebuyer, jobless bill assistance Stocks & economy Section Front   Add Stocks & economy headlines to your news reader: