AIG - Securities Lending

  • Date-? - NAIC - Capital Markets Bureau Special Report - Securities Lending in the Insurance Industry - 9p
  • 2003 - LC - AIG Global Securities Lending Corp. v. Banc of America Securities LLC, 254 F. Supp. 2d 373 (CaseText) -  (S.D.N.Y. 2003). 
  • 2005 0926 - LC - AIG Global Securities Lending Corp. v. Banc of America Securities
    • Court: United States District Court, S.D. New York
    • No. 01 Civ. 11448 (JGK) (S.D.N.Y. Sep. 26, 2005)
  • 2010 - AP - The Role of Repurchase Agreements and Securities Lending in Distressed Financial Institutions, by Irvin Chan - 52p
    • (p4) - We then illustrate a mini-case of AIG and its securities lending business that parallels the repo lending that occurred with Bear Stearns, finding that AIG took on systemic exposure to a wide swath of AAA-rated tranches and mortgage-related investments, which quickly became illiquid and subject to a market freeze of a different sort.
  • 2009 0305 - GOV (Senate) - American International Group: Examining What Went Wrong, Government Intervention, And Implications for Future Regulation, (CSPAN) Government Intervention and Regulation of AIG, Chris Dodd (D-CT)   ---   [BonkNote]
    • (p57) - Eric Dinallo - There is justified concern about AIG's securities lending program, which affects only AIG's life insurance operations.
  • 2009 0305 - GOV (House) - Perspectives on Systemic Risk, Paul Kanjorski (D-PA)   ---   [BonkNote]
    • (p37-38) - Terri VAUGHAN.  AIG did have securities lending operations; a number of life companies have securities lending operations. No life insurance has gone insolvent because of its securities lending operations. The New York Superintendent had been working to address the issue of securities lending in AIG, and the insurance company had reduced the amount, and was in the process of reducing it further,  when it was overtaken by the problems with the credit default swap operation.
      • Credit default swaps led to a downgrade in AIG, it led to liquidity calls in the insurance company. Still not insolvent but there was a liquidity issue.
  • 2007 1129 - FCIC - PWC Notes re Meeting to Discuss Super Senior Valuations and Collateral Disputes - 3p
    • Secondly the issues in AIG Investment around the securities lending and the fact that if the exposure had been known prior to the q2 10Q being issued it is highly likely that the disclosures would have been changed.
  • 2010 0830 - FCIC - Report - Preliminary Staff Report - Governmental Rescues of "Too-Big-to-Fail" Financial Institutions- 43p
    • In addition, AIG was exposed to significant losses from its securities lending operation.
      • That operation pooled investment securities held by AIG‟s life insurance subsidiaries and lent out those securities in exchange for cash collateral.
      • The securities lending operation invested that cash collateral in a variety of securities, including $45 billion of MBS. As the MBS became illiquid in 2007, AIG was unable to sell the MBS to raise the cash needed to repay its securities lending counterparties.
      • In early September 2008, counterparties demanded that AIG return $24 billion in cash, thereby aggravating AIG‟s liquidity problems.110
        • 110 COP (2010b), at 42-46.
  • 2008 0819 - FCIC - Goldman Sachs / FRB emails - Don’t Buy AIG: Potential Downgrades, Capital Raise on the Horizon - 20p
  • 2007 1129 - FCIC - PWC Notes re Meeting to Discuss Super Senior Valuations and Collateral Disputes - 3p
  • 2009 0305 - GOV (Senate) - American International Group: Examining What Went Wrong, Government Intervention, And Implications for Future Regulation - aka Government Intervention and Regulation of AIG, Eric Dinallo - [PDF-72p
  • PDF-380p,
  • 2009 04 - JP Morgan - Securities Lending in a crisis environment: Lessons learned, Joshua Lavender - [link]
  • 2009 - Legal Case - American International Group, Inc. 2008 Securities Litigation - Document 95 - Complaint - Case 1:08-cv-04772-LTS Filed 05/19/2009 - 307p
  • 2011 - AP - AIG: Misconceptions, Precipitating Factors in Government Bailout, and Implications for the Financial Industry, Alexis Paulovich - 56p
  • 2011 0708 - NAIC - Capital Markets - Securities Lending in the Insurance Industry - 10p
  • 2013 11 - FRB-NY - Securities Loans Collateralized by Cash:  Reinvestment Risk, Run Risk, and Incentive Issues, Frank M. Keane - [link]
  • 2014 - Mercatus / American Banker - AIG's Collapse: The Part Nobody Likes to Talk About, Hester Peirce - [link]
  • 2014 05 - AP - Securities Lending and the Untold Story in the Collapse of AIG, Hester Peirce - No. 14-12 - 82p
  • 2020 03 - Yale - YPFS - The Rescue of American International Group, Module B: The Securities Borrowing Facility - 18p
  • 2008 0819 - Goldman Sachs / FRB emails - Don’t Buy AIG: Potential Downgrades, Capital Raise on the Horizon - 20p
    • Exhibit 3: Potential rating downgrades impact on underlying fundamentals
    • Securities Lending
      • If securities borrowers decide not to roll based on lenders' credit ratings, AIG might have to liquidate (potentially risky) assets to generate the cash to return to borrowers, thus raising the potential for capital hits.
      • AIG is said to be one of the more risky securities lending insurance participants.
  • 2010 01 - BIS / The Joint Forum - Review of the Differentiated Nature and Scope of Financial Regulation Key Issues and Recommendations - 128p
    • Another issue AIG had to face came from its securities lending programme.
      • AIG's insurance undertakings essentially lent securities via this programme to other financial institutions outside the AIG group in exchange for cash collateral.
      • This money was then used by AIG Investments for investments in RMBS and other debt obligations.
      • News on the weakening state of AIG caused increasing numbers of lenders to return the securities and to regain their money from AIG.
      • This caused further liquidity difficulties for AIG.
    • →  Both activities contributed to a strong need for additional liquidity at AIG in September 2008.
      • [Bonk: Both Activities = Securities Lending and AIGFP-Credit Default Swaps
  • 2008 1009 - WSJ - Further Loan To AIG Shows Fed Miscalculated Risks, By Liam Pleven, Carrick Mollenkamp and Craig Karmin - [link] - <WishList?>
    • AIG's securities-lender clients flooded the program for their collateral, creating a "mini-run" on the bank, says Doug Slape, chief financial analyst of the Texas Department of Insurance.
    • The company began drawing down on the Fed loan commitment to cover the collateral requests, it told Mr. Slape in recent conversations, he said.
    • By Oct. 3, Moody's Investors Service said AIG's default-insurance and securities-lending program had experienced "substantial losses and write-downs" due to mortgage securities.
    • The Texas regulator grew concerned about the exposure in 2007.
      • At the time, AIG told Texas it recognized that it needed to retain more cash, Mr. Slape said.
  • 2009 0514 - GOV (House) - How Should the Federal Government Oversee Insurance?, Paul Kanjorski (D-PA)  ---  [BonkNote]
    • As you heard, my name is Martin Grace. ... billion in taxpayer money did go to bailing out AIG insurance subsidiaries and their securities lending program.
  • 2009 0305 - GOV (Senate) - American International Group: Examining What Went Wrong, Government Intervention, And Implications for Future Regulation - Government Intervention and Regulation of AIG (CSPAN) - [PDF-72p, VIDEO-SPAN
    • 15 - Shelby, Securities lending, State Insurance Regulation,  Disturbing Story
    • 33:00 - Eric Dinallo (NY / NAIC) - Securities Lending didn't have anything/much to do with AIG Collapse, run on aig life, <Reputational Risk>, 
    • Securities Lending, RMBS, Liquidity, <C-3, 1980 SOA Paper>, Run on AIG, 
    • Scott Polakoff - OTC, Donald Kohn
  • PDF-380p,
    • (p31) - Joel Ario (NAIC - PA):  But there is a well there where if we are pressed real hard on some sensitive topics, we don’t have clear authority to go into the holding company level.
      • And so I do think you need somebody that has clear authority at that holding company level as well.
  • 2009 - Legal Case - American International Group, Inc. 2008 Securities Litigation - Document 95 - Complaint - Case 1:08-cv-04772-LTS Filed 05/19/2009 - 307p
    • 23. On Thursday, September 11, 2008, AIG executives brought in bankers from JP Morgan and a Blackstone consulting group, who determined that AIG would need at least $40 billion.
      • However, on Sunday morning, September 14, AIG’s outside advisers discovered that the Company’s securities lending business needed a separate injection of as much as $20 billion.
      • As a result, an offer of a $20 billion lending facility that the New York State Insurance Superintendent, Eric Dinallo, had considered establishing for the benefit of AIG became moot since it was becoming clear the Company needed at least $60 billion of financing.
    • 24. Things rapidly continued to spiral downward.
      • On September 15, AIG informed Superintendent Dinallo that it needed as much as $70 billion to avoid failing.
      • Mr. Dinallo responded that the State would not act unless there was a plan in place to provide the rest of what AIG needed to survive.
    • (p77) - 211. On August 7, 2008, AIG held its 2008 second quarter earnings conference call.
      • On the call, Mr. Willumstad acknowledged that AIG’s risk concentration in the U.S. housing market had been too high: “[Y]ou see again in retrospect much of the problems that have come about have been a concentration of risk in the U.S. housing market both in the investment portfolio and the credit default swap book.”
  • “We were aware of this portfolio but we didn’t have transparency on what was in it because it was off-balance sheet” in the company’s statutory accounting reports, said Doug Slape, chief analyst at the Texas Department of Insurance, which oversees three AIG insurers that have suffered about 60% of the write downs.

2008 0627 - Reuters -  AIG To Lose Up To $5 Billion From Investments: Report - [link]

2008 0627 - Bloomberg  News - AIG to Absorb $5 Billion Loss on Securities Lending.  Miles Weiss - <WishList>

2013 - AP - Repercussions: The Impact of the AIG Bailout on it’s Insurance  Subsidiaries, Shauna Ferris, Presented to the Actuaries Institute Actuaries Summit - 34p

  • AIG’s securities lending program is a centrally managed program by AIG Investments for the benefit of certain of AIG’s insurance companies and the Asset Management segment.
    • Securities are loaned to various financial institutions, primarily major banks and brokerage firms.
      • Cash collateral generally ranging from 100 to 102 percent of the fair value of the loaned securities is received and is invested in fixed maturity securities to earn a net spread.
    • To the extent that the collateral received is less than 102 percent, AIG has agreed with its insurance companies to *deposit funds to the collateral pool for the benefit of the insurance company participants.

2008 06 - AIG 10Q - [link]

*[Bonk: deposit funds = AIG – Matched Investment Program – (MIP)?]

  • 2010 0526 - COP - Hearing - Michael Moriarty (New York State Insurance Department - NYSID) - 7p
    • Whatever the AIG insurance companies’ losses on securities lending, those losses should not have created serious problems for other financial institutions, which were protected by the fact that they held and could keep the securities they borrowed if AIG could not return the collateral they provided.  (p7)
  • [Bonk: Connect with FCIC Interview - Richard Scott]
  • 2011 - AP - AIG: Misconceptions, Precipitating Factors in Government Bailout, and Implications for the Financial Industry, by Alexis Paulovich - 56p
    • (p11-12) - Securities lending activities for AIG’s insurance subsidiaries were consolidated to a special unit that was not licensed as an insurance company, AIG Investments (FCIC, 2010f, 4).
    • (p12) - For collateral, AIG Securities Lending Corporation, a division of AIG Financial Products, lent securities owned by several of the parent company’s life insurance subsidiaries to authorized borrowers (Congress, 2010, 43). 
    • Google Search: "aig investment" "securities lending" - 85 results
  • (p36 / 89) - 7.5 AIG’s Securities Lending Operations Faced the Same “Run on the Bank” Pressures as Many Other Financial Firms.
  • (a) Bernanke: “Whenever there was doubt about a firm, as in a standard bank run, the investors, the lenders, and the counterparties would all pull back their money quickly for the same reason that depositors would pull their money out of a bank that was thought to be having trouble.” (PTX 708 at 79).
  • (b) Deloitte & Touche: “Because of the significant market turmoil caused by the Lehman bankruptcy filing, [AIG] experienced severe financial distress due to liquidity requirements at one of its subsidiaries and its inability to maintain its securities lending relationships.” (JX 387 at 2).
  • (c) Between September 15 and 22, AIG’s cumulative liquidity outflow from collateral postings, securities lending balance outflows, and downgrades totaled $25 billion. (Cragg: Trial Tr. 5033:23 – 5036:14; PTX 5341 (Cragg demonstrative)).
    •  (d) On September 12, 2008, Mosser sent an e-mail to Geithner and others at FRBNY stating: “Markets are also punishing AIG.”
      • “Some banks are already pulling away; some banks are even turning down AIG in the secured (repo) borrowing markets”.
      • “AIG’s repo book is all investment grade, mostly structured mortgage products. . . . Things that have, in the past, been used as repo collateral. . . . but the combination of being perceived as a weak counterparty and risky, illiquid collateral is resulting in counterparties stepping away . . . .
      • Securities lending (mostly out of the insurance companies) – about $69B in liabilities, and the holding company has only enough cash to fund ½ of that, if sec lending counterparties turn away from the AIG name.” (PTX 42 at 1-2 (ellipses in original)).

Starr International Company, Inc. v. The United States - Case 1:11-cv-00779 - Document 428 - Plaintiff's Proposed Findings of  Fact - 573p 

  • 2020 03 - Yale - YPFS - The Rescue of American International Group, Module B: The Securities Borrowing Facility - 18p
    • At some points, AIG accepted collateralization levels as low as 80% (from Credit Suisse) and 73% (from Barclays)7 (Hutchings 2010).
    • (p7) - As markets roiled throughout the summer of 2008, AIG’s liquidity problems became increasingly clear to securities borrowers (GAO 2011, 19),