Fed Shoulders AIG Loan Losses of $450Million to Ease Sale to MetLife

By Hugh Son

March 11 (Bloomberg) — The Federal Reserve Bank of New York and American International Group Inc. agreed to shoulder as much as $450 million in losses tied to the insurer’s Japan real estate bets as part of the sale of a division to MetLife Inc.

MetLife won an accord to split most declines on $1 billion in commercial mortgages included in the $15.5 billion purchase of the AIG unit, according to a MetLife regulatory filing and the company’s chief financial officer. A corporate vehicle owned by the Fed and New York-based AIG will use MetLife stock gained in the sale to pay for future real estate losses, reducing the assets left to repay taxpayers, said two people with knowledge of the arrangement.

AIG’s Japan mortgage holdings were deemed a “more troubled asset” by MetLife, which is also indemnified from losses on one of the U.K. businesses it will acquire in the purchase of American Life Insurance Co. AIG said March 8 it is divesting Alico, which operates in more than 50 countries including Japan, to pay down bailout debts on a $60 billion Fed credit line.

“You have to ask yourself, ‘does the American taxpayer have any hope of getting their money back any other way besides selling this business?’” said William Cohan, a former JPMorgan Chase & Co. banker and author of “House of Cards,” about the financial crisis. An agreement for one side to retain some risk is typical in deals “when the buyer and seller have a difference of opinion about an asset,” he said.

Read more here:  http://www.businessweek.com/news/2010-03-11/fed-shoulders-aig-loan-losses-to-ease-sale-of-unit-to-metlife.html

Secret AIG Document Shows Goldman Sachs Minted Most Toxic CDOs

Richard Teitelbaum, Bloomberg

When a congressional panel convened a hearing on the government rescue of American International Group Inc. in January, the public scolding of Treasury Secretary Timothy F. Geithner got the most attention.

Lawmakers said the former head of the New York Federal Reserve Bank had presided over a backdoor bailout of Wall Street firms and a coverup. Geithner countered that he had acted properly to avert the collapse of the financial system.

A potentially more important development slipped by with less notice, Bloomberg Markets reports in its April issue. Representative Darrell Issa, the ranking Republican on the House Committee on Oversight and Government Reform, placed into the hearing record a five-page document itemizing the mortgage securities on which banks such as Goldman Sachs Group Inc. and Societe Generale SA had bought $62.1 billion in credit-default swaps from AIG.

These were the deals that pushed the insurer to the brink of insolvency — and were eventually paid in full at taxpayer expense. The New York Fed, which secretly engineered the bailout, prevented the full publication of the document for more than a year, even when AIG wanted it released.

That lack of disclosure shows how the government has obstructed a proper accounting of what went wrong in the financial crisis, author and former investment banker William Cohan says. “This secrecy is one more example of how the whole bailout has been done in such a slithering manner,” says Cohan, who wrote “House of Cards” (Doubleday, 2009), about the unraveling of Bear Stearns Cos. “There’s been no accountability.”

CDOs Identified

The document Issa made public cuts to the heart of the controversy over the September 2008 AIG rescue by identifying specific securities, known as collateralized-debt obligations, that had been insured with the company. The banks holding the credit-default swaps, a type of derivative, collected collateral as the insurer was downgraded and the CDOs tumbled in value.

The public can now see for the first time how poorly the securities performed, with losses exceeding 75 percent of their notional value in some cases. Compounding this, the document and Bloomberg data demonstrate that the banks that bought the swaps from AIG are mostly the same firms that underwrote the CDOs in the first place.

Read more here: http://www.bloomberg.com/apps/news?pid=20601208&sid=ax3yON_uNe7I

AIG drops entire derivatives portfolio sale plan

Francisco Guerrera, Financial Times

AIG has shelved plans to sell the whole of its derivatives portfolio, which nearly destroyed the insurer in 2008. It believes that keeping up to $500bn worth of complex positions could help it to survive as an independent entity and repay US taxpayers.

The decision underlines the management’s confidence in AIG’s future but could prove controversial in Washington, where officials have baulked at the cost of the US government bail-out of the insurer and scrutinised its use of derivatives.

Gerry Pasciucco, who joined AIG after it was rescued by the government in September 2008 to wind down AIG Financial Products, said the troubled unit would still be out of business by the end of this year. AIGFP caused a storm in Congress last year with plans to pay some of its 200-plus staff large bonuses.

The original plan, devised by then chief executive Edward Liddy and the government after the rescue, was to sell off all the positions and close down AIGFP as soon as possible. But Mr Pasciucco said that derivatives with a notional value of between $300bn and $500bn – or between 15 and 25 per cent of the derivatives portfolio’s original size – would not be sold. The assets could either be managed by AIG or outsourced to an external fund manager, he added.

AIG’s management, led by chief executive Robert Benmosche, believes that such a move reduce the need for fire sales and enable AIG to reap…

Read more here: http://www.ft.com/cms/s/0/d38e7f9c-1c07-11df-a5e1-00144feab49a.html

AIG CEO Whines About Bonus Pay Restrictions

AIG’s new chief executive officer is unhappy. The Huffington Post and The Wall Street Journal say that CEO Robert Benmosche is frustrated over bonus pay restrictions from the U.S. Government. He wants to make sure he retains “the talent,” say both publications. The talent? AIG would have collapsed without  a speedy government bailout. So how talented could its employees have been?

You want to pay big bonuses to your employees, Mr. Benmosche? Fine. Then give us back the bailout money. AIG shouldn’t have received a single nickel.  The big banks should have been cast adrift, too. They’re private businesses, and they should never receive public funds. Let them fail!

Read more about AIG’s CEO on The Huffington Post…

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