Commodities ravaged | Bruiser of Wall St looked after people | Memorabilia worth more than bank | Middleman left holding parcel | Leader: after Lehman

A financial disaster that would dwarf the Lehman Brothers bankruptcy loomed today as one of the world's biggest insurers was shaken to its foundations.

Shares in American International Group (AIG) today fell 43.28 per cent amid fears that a £42 billion rescue package might fail to materialise. The shares had fallen 60.8 per cent on Monday.

David Paterson, the New York Governor who is coordinating efforts to bolster the insurer, gave warning that the insurance giant had just one day left to resolve its financial problems before triggering "catastrophe".

AIG, once the world's largest insurance company, has 116,000 staff — four times more than Lehman Brothers, the US investment bank that filed for bankruptcy yesterday — and its collapse could have a cataclysmic effect on global markets.

AIG provides insurance against complex financial instruments going bust, including mortgage-backed securities.

As investment banks, such as Lehman, have written down billions of dollars worth of mortgage-backed assets, AIG's insurance payouts have soared, leaving the company scrambling for new capital.

Over the past nine months, AIG has reported $18 billion worth of losses on guarantees that it wrote on mortgage-backed securities.

Shares in AIG plummeted as the Dow Jones industrial average opened today, when Standard & Poor's joined Moody's in cutting AIG's credit rating. This means it will now be even more expensive for AIG to raise new funding.

Last night, the Federal Reserve asked JPMorgan Chase and Goldman Sachs to organise loans of up to $75 billion (£42 billion) for AIG, while New York State officials struck a deal allowing the insurer to borrow $20 billion of capital from its own subsidiaries.

Mr Paterson said yesterday that the New York authorities would allow AIG to loan itself $20 billion by shifting liquid investments from some of its regulated subsidiaries to the group.

However, Governor Paterson said that AIG has “a day” to solve its problems and a failure would result in a “catastrophic problem” for the market.

Despite the decline, the Dow Jones industrial average was trading down just 20.5 points at 10,897.7 as traders waited to see whether the US Federal Reserve would cut interest rates today. A decision is expected later today.

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