2010 0430 – FCIC – Interview – James M. Mahoney, FRB-NY – 6p

  • 2010 0430 – FCIC – Interview – James M. Mahoney, FRB-NY – Team Leader: Dixie Noonan  —  [BonkNote]  —  6p
  • AIG – Securities Lending, Maiden Lane II, AIGFP, GIC’s, OTS, Insurance Regulators
  • Mr. Mahoney said that he first became involved with AIG was in September 2008 when he was asked to meet with AIG management about the company’s liquidity problems.
    • … lead on Maiden Lane 2, he has been on the AIG team since September 12, 2008. He said his responsibilities include looking at liquidity at AIG, going through cash flow needs of the company, its cash flow forecasts, and its upcoming needs.
  • (p2) – Dixie asked what would have immediately precipitated a ratings downgrade, and Mr. Mahoney said that in the second quarter of 2008, the company “had extraordinary losses in the order of $20 billion, which were announced I think August 6 and then in the subsequent days, each of the sell side analysts, from Merrill and Goldman to the banks and sell-side firms, issued reports to examine the losses – where they came from, was it a one-time event – and subsequently, the rating agencies put them on a watch for a downgrade.
    • Because there were lots of rating agency triggers in the CDS contracts where counterparties could demand more collateral in the event of a downgrade,” AIG felt a need to explain its situation to the NY Fed, he said.
      • He said that the securities lending program, which was already experiencing problems because counterparties were terminating trades, would have suffered greatly in the event of a downgrade because counterparties would terminate their trades in huge numbers.
      • He also said that a downgrade would have triggered automatic cash demands, and would make it much harder for the company to roll commercial paper – “we heard this parade of horrible events,” he said, noting that “lots of the things they discussed did end up happening.”
    • (p2) – He said that another threat to the company was that conservative money managers leading pension funds that invested in Guaranteed Investment Contracts (“GICs”) would sell their investments en masse in the event of a downgrade. He said that ultimately that did happen to a degree, but that “it could have been worse.”
    • Dixie asked if Mr. Mahoney could help distinguish which consequences of a downgrade were caused by provisions in contracts between AIG and its counterparties, and which were behavioral.
      • Mr. Mahoney said that the CDS triggers were contractual, and the problems with the securities lending division were behavioral.
      • “Counterparties rely on collateral and ratings in securities lending, so if the rating falls in value, they will demand more collateral,” he said.
    • Dixie asked if Mr. Mahoney could explain the relationship between the problems in the securities lending business and AIG FP, and whether or not the problems at the two companies were triggered by the same things.”
      • Mahoney … So they were all risky assets, and they all suffered the same fate.” 
    • (p3) – Chris [Seefer]asked who at AIG was most knowledgeable about the company’s problems.
      • Mr. Mahoney said that the people he listed earlier provided the best information to his knowledge.
      • They included Bob Gender, David Hertzog, and two other people whose name he could not remember who knew the most about the variety of liquidity needs at the company.
    • (p4) – Mahoney – So at that point we hadn’t made the loan, we were feeding information to policymakers… because before then, no one had given authority to work on anything because we were not a lender or anything.”
    • (p5) – Dixie asked who described the problems with the securities lending program.
      • Mr. Mahoney said, “no particular representative sticks out in my mind as particularly knowledgeable about sec lending.
        • I don’t recall anyone from the sec lending area being particularly noteworthy, unlike the FP people who had clearly originated many details and knew well the various contracts, termination clauses etc.,” he said
    • “I never met anyone from the OTS, and they weren’t there in person. There was a lot more interaction with state of New York insurance department – that’s where the sec lending program problems were… so there was lots of daily interaction with the Insurance Department, I’m not sure about interaction with the OTS, but as far as boots on the ground, I had no interaction with the OTS,” he said.
    • Mr. Mahoney said that three areas of focus were (1) maturing debt, (2) the fact that if CDOs deteriorated further, the company would face more collateral calls, and (3), the company was unable to roll its mature securities lending contracts.”
      • He said that the NY Fed was “able to maintain three counterparties out of a dozen from sec lending – Credit Suisse, Barclays, and Citi. Everyone else was turning securities back in.”
      • He explained that starting on October 8, the NY Fed instituted a temporary securities borrowing facility.
        • “We said, ‘these securities that counterparties are giving back are high quality corporate bonds – the kind of things we lend against,’ so we could take in this high quality collateral, enhance our collateral position, and not have the parent facility used to make a direct loan to the insurance subsidiary.
        • So we instituted a temporary secured borrowing facility so the company could take those securities, pledge against our debt window which was set up specifically for sec lending, for the 11 insurance subs.”
    • (p5) – Dixie asked Mr. Mahoney to describe the terms of the securities borrowing facility.
      • He said that there was a question of how to turn the NY Fed’s temporary solution (the securities borrowing facility) into a more permanent resolution, which is where Maiden Lane 2 came in.
        • “One big issue was that if the held securities still had lots of credit risk in holding corporate bonds, but the reinvestment pool was not something state regulators were looking at.
          • So it was not viewed as viable that company would maintain ownership of residential-backed securities because prices were so volatile.
          • They didn’t get the type of capital credit when you calculate insurance companies’ risk-based capital – they were not the type of assets they could keep holding.
          • So it was clear these RMBS would experience defaults.
          • So it was clear they would ultimately be downgraded.
          • And a well known criticism of rating agencies [was that they were] using the same [ratings] scheme for corporations as for securities.
          • You don’t see AA and AAA firms failing, but they said AA is AA whether it’s for a company or a structure.
          • Turned out not to be true.”
          • He said that there was a “huge migration of ratings over that time period.
          • It hadn’t happened yet, but everyone knew it was a matter of time before the ratings agencies would change.
          • Prices already reflected it.
          • People, traders in the market knew that risk was not reflected in the ratings themselves.”
  • (p6) – Dixie asked if he or his team conducted any analysis of how AIG got to the position where it found itself in the fall of 2008.
    • “We did almost no looking back,” he said.
  • (p6) – Dixie asked if the sec lending program has been shut down, and he said that the domestic sec lending program was shut down the day Maiden Lane was created. 

2009 1117 – FCIC – Hearing – Financial Crisis Inquiry Commission – Timothy Geithner – Closed Session

  • (p3) – Secretary Tim GEITHNER:  So you guys have a list — I saw some of the lists you presented that had 21 causes.
  • CHAIR ANGELIDES: 22.
  • Secretary Tim GEITHNER:  22? Those are a pretty good list.
    • I want to kind of give you a hierarchy of what I think was most consequential.
    • I’m not claiming perfect foresight. I’m not claiming unique wisdom.
    • Obviously, I’ve got biases just in a prism of my past, like everybody else. But I think it’s important for you to hear that from me, because you can view everything I say after this, when I get to do this more formally with you guys, and through this prism. Okay?
    • So I think my list has eight or something like that, or seven
    • ………. long period of relative stability…….
      1. Mistakes in Ratings, Risk Management
      2. Second, not different, though, is the basic monetary policy, global imbalance thing.
      3. Third. The simplest way to think about regulatory failure in the United States is, I think, through the following prism:
        • Shadow Banking – investment banks —  AIG, to some extent, for the guys who are sort of operating as quasi-thrift finance companies. Countrywide is the best example.
          • Again, they were basically banks run with a huge amount of leverage liquidity risk. And when the world turned and people were unwilling to fund these guys, they came crashing down, putting a huge amount of pressure on the rest of the system. 
      4. Incentives – compensation structure, tax regime did to incentives to borrow, accounting system
      5. Moral hazard
      6. Regulations and Enforcement
      7. Inadequate tools for containing the damage – why the crisis got so bad
  • (p10-11)  – Secretary Tim GEITHNER – The final-final point, which is not so much about the cause of the underpinning — underlying vulnerability in the system but mostly about why the crisis got so bad is, you know, we came into this crisis, the United States of America, with deeply inadequate tools for containing the damage. There are two — to make it simple, there are two types of tools that we did not have as a country. One is for managing failure of large, complex institutions, we had it for banks and thrifts but did not have it.
    • The Secretary of the Treasury at that time, to his enormous credit, proposed legislation in the immediate aftermath of Bear Stearns to remedy that problem. Still don’t have it today, although we’re hoping to get it today, soon.
      • ⇒  And it’s, bankruptcy doesn’t work for financial institutions. It’s a complicated question, but I’m sure that’s right.
      • And lacking that authority made the crisis much more damaging than it should have been.
    • The other thing is the authority to contain financial panics. This was a classic financial panic. A crisis that involved, like, the failure of a couple firms because of just mismanagement are not hard to deal with. But broad-based financial panics, hundred-year floods are very hard to deal with.
      • But because we allowed this enormous banking to grow up outside the banking system itself with no tools to contain panics there, there was much more damage than there should have been.
  • (p15-16) – Secretary Tim GEITHNER: The way — I should have said it a little, slightly differently. I think there are these two gaps in the system.
    • One is around institutions like, you know, AIG, major investment banks, the Countrywides of the world.
    • The other was around what you might call “markets.”
      • And the way the derivative market evolved and the way the secured lending, the securities lending, tri-party repo markets evolved, you had a system where contagion was going to spread much more broadly when institutions were at risk.
    • ….
    • (p16) – But it’s not for the reason many people talk about because, in fact, the direct exposure these firms had in their derivative positions, their exposure to hedge funds, was pretty modest relative to capital. They actually managed overall exposure relatively  carefully relative to capital. There was just panic-inducing behavior from the way the weakness spread across the system, both through the funding mechanism and in some sense in the derivatives markets.
  • (p17) – COMMISSIONER BORN: Largely, because of a lack of transparency? 
  • SECRETARY GEITHNER: I think part of it is that; but, again, derivatives — if the monoline insurance companies and AIG were not allowed to — were not able to write huge amounts of protection with no capital to back it up — when I said about capital, I meant among the regulated in the areas — if they had not been able to overwrite those commitments, it would have been a less serious crisis — a much less serious crisis.
    • And that’s just a more simple thing.
    • It’s not about derivatives so much as being no capital to back a commitment.
      • It doesn’t need a fancy — it’s not a fancy product or even so much oversight of derivatives.
      • It’s just the regulatory authority responsible for those institutions did not force them to hold capital against their commitments.
  • Secretary Tim GEITHNER: AIG — inconceivable to me, going into the weekend, that we should or could do anything about AIG. I was completely against it. I thought it would be a mistake, not necessary. But I thought about it a lot.
    • I spent a lot of time over that weekend when we were doing this, looking at the way the insolvency regime would work for a global insurance company, and looking very, very carefully at the alternatives and what their basic balance sheet looks like. And I think there were three things that were sort of clear in the end.
      • One was that it would be a terrible mess, much worse than Lehman. Because they had Lehman-type risks for the entire system, but they also were an insurance company. They had written a huge amount of contracts. They would have the classic retail insurance panic that would have, in our judgment, made it much worse.
      • So it was — I learned something about it over the weekend. Interesting. The insolvency regime had no capacity of managing.  —   It would have been just a terrible nightmare. Remember, it’s 80 countries, 50 states. Not designed for this.
        • ⇒ We spent a bunch of time with the insurance people, the experts on how this thing would work, it was a terrible, terrible mess.
        • I can’t be sure, but that was our basic deduction.
    • The other thing was, in the eyes of many people, their underlying insurance companies, which are generating a lot of earnings over time, made the whole company basically probably conditionally solvent if they could be funded.
      • So we could make the argument, legal argument, that we had the ability as the central bank because we were lending against collateral.
        • Congress had authorized that in 1930, or nineteen-whenever, when they did that.
      • And as long as there was enough collateral to lend against, we had real companies operating businesses that were generating a huge amount of earnings over time, huge market share.
  • (p45-46) – Secretary Geithner: For two reasons: Because it was systemic and because it was an option for doing so. So if it needed both, okay — if it wasn’t systemic, we would have been indifferent to it. If it was systemic but we had no option, we wouldn’t have done it.
  • Commissioner Holtz-Eakin Can you give us a metric of systemic?
  • Commissioner Wallison: Yes, what do you mean by “systemic”?
  • Secretary Geithner: “Systemic” is, as you guys know, I’m sure better than anybody, nobody knows what’s systemic. It’s completely — you can’t say it —
  • Commissioner Wallison: What’s the rest —
  • Secretary Geithner: I know, but you can’t say it — there’s no objective standard of what is systemic. It’s a —
  • Commissioner Wallison: Well, what specific things did you think would happen, is the big question. What would happen if Bear Stearns had failed? What would have happened?

FCIC – Documents

  • 2008 0630 – FRBNY – FRBNY Observations on the Role of Supervision in the Current Financial Crisis – 10p
    • (p2) –  The scale of losses relative to capital and potentially problematic exposures relative to capital, so far, are much greater for institutions where we the Fed is not the primary consolidated supervisor, including some major non-U. S. banks, investment banks, the GSEs, and the monolines. 
  • 2010 – FCIC – Preliminary Staff Report – Credit Ratings and the Financial Crisis – 48p

FCIC – Interview – MP3 – Snippets

  • AIG – People – FCIC Interviews – mp3s
  • Steve Benzinger – {Negative Basis – Cassano told us, we just didn’t know what it meant}
  • Joe Cassano – {AIGFP was 40 Billion, Where did the rest go?}
  • Gary Gorton – {I wasn’t involved with Alan Frost, AIG SSCDS from 2002 on}
  • Hank Greenberg – {2005 downgrade = 1.5 billion Collateral Call for AIGFP}, 
    {AIGFP Should have stopped writing SSCDS in March 2005 when AIG was Downgraded}, {off the Record – AIG is a National Treasure}, 
  • Mark Hutchings – AIG-Securities Lendings
    • Held over a barrel, less than 102 – 73 (Barclays-?)
    • Never told to wind-down 
    • Dixie – How did you know it was going to work that way?
    • Could always lend more, Dixie- Then why didn’t you?, we did up to time of Bailout
  • Kevin McGinn – {Didn’t know about Collateral Triggers, Ratings Downgrades or Valuation}
  • Gene Parks – {Forster told me about Collateral calls because of Valuation, but I didn’t know what it meant.}
  • Richard Scott – AIG
    • never was told to wind-down Securities Lending
    • liked subprime better
    • Technically in charge of AIG-Securities Lending since 2003 / 2004, wasn’t really until 2007.
  • Lloyd Blankfein – Goldman Sachs
    • thought the problem was repos, 
    • thought AIGFP had the money, just being stubborn, at least in the fall of 2007
  • Warren Buffet
    • good ideas go bad
    • Regulatory Relief  – 2008, Depression Era
  • 2010 0614 FCIC John H. Neel Foster, FASB
    • Enron, Mark to Market, Fair Value, Goldman Sachs-Did well through 2008 Crisis
  • Arthur Levitt
    • Gullible Public – approx. 1:17:00
  • Cooper Union
    • Part 2 -Regulator Neglect
      • no red flags
      • goes off the record, something about a Bear Stearns guy
  • Harvey Miller – Weil
    • ~~ Greenspan – What would be bad about…
    • ~~ There’s no institutional knowledge
    • ~~ Ben Bernanke – I don’t know…
  • David Viniar – Goldman Sachs
    • money flowed through AIG Holding Company to Insurance Companies – Easier, cleaner

Bank of America

  • Ken Lewis
  • 2010 1220 – FCIC – R Brown Letter to Gary Cohen re Plepler Quote – 2p
  • 2011 0125 – FCIC – BAC Letter to FCIC re Audio Files – 4p

2010 0701 – FCIC – 2008 Financial Crisis and Derivatives – Day 2 – Regulators Panel

  • 2010 0701 – FCIC – Hearing – 2008 Financial Crisis and Derivatives, Day 2, Regulators Panel – [PDF-313p, VIDEO-CSPAN]
    • Eric Dinallo (NY Insurance Regulator), Gary Gensler (CFTC), Clarence Lee (OTS)
    • 21:00 – How come we didn’t see this? – Bill Thomas (FCIC), Gensler (CFTC)
    • 37:00- Dinallo, Born (FCIC) –
      • Born – Some have suggested that the real problem at AIG related to the Securities Lending program.
      • 41:00 – Dinallo – AIG Companies were fully solvent, wasn’t the reason for the Bailout
      • Run on AIG Life, general economy, RMBS – Doubling down on real estate
      • Dinallo – Asset Liability Matching – Statutory Account vs Mark to Market
      • 44:00 –  Dinallo – Run, consumer lack of confidence in insurance products, liquidity problem
    • 53:00 – Wallison, Dinnallo – AIG company could do CDS because of AIG Life Rating,  Big Miss, Rating Company, 
    • 1:22 – Clarence Lee (Retired ), Keith Hennessey (FCIC)
      • Did they understand these risks? Cassano, etc
      • Probability, demands, liqudity,  understood the risks… low probability… willing to take them
      • 1:27 – Eric Dinallo – Collateral, no reserves, liquidity miscalculation, ratings downgrades
      • 1:31 – Keith Hennesey (FCIC) – AIG FP “got away” with it because they were part of the larger AIG Insurance Company.  Dinallo – Yes, I have written that. Dilapidated house example.  not really insurance
    • 1:33 – Hennessey – What would have happened if the Fed had not Bailed out AIG?
      • 1:35 – Dinallo – History, Geitner, Full blown Credit crisis, AIG Insurance Companies generally good.  AIG Asia Run – Singapore…. Could have undermined the 3rd Leg (Insurance)
    • 1:37 – Douglas J. Holtz-Eakin (FCIC) – How would this have affected Construction Bonds?
      • 1:37 – Dinallo – Problem for Insurance Companies is non-renewal of premiums.
    • 1:41 – Gensler – Mispriced.   Definition.  Underestimating and lack of preparation for bad things happening.  “underestimated risk” . Liqudity Risk, Correlation Risk, Tail Risk, Black Swan?  Credit Risk, “house of cards built on a housing bubble”, confidence was shot, if I just had more time, nobody will hand you more chips,
    • 1:47 – {eter Wallison (FCIC) – Nobody saw this coming, not even Warren Buffet. 
    • 1:57 – Dinallo – 4 buckets – Derivatives are based on those 4 buckets… there is no 5th bucket. 36 to 1 leverage. no rules
    • 1:36 – Born/ Dinallo – Deregulation, Regulators, Capital Requirements, CFMA – Told Wall Street you don’t have to reserve, unregulated, Regulation vs Enforcement, 
  • 2010 0701 – FCIC – Hearing – 2008 Financial Crisis and Derivatives, Day 2, Regulators Panel – [PDF-313p, VIDEO-CSPAN]
    • Eric Dinallo (NY Insurance Regulator) – Testimony – 20p
      • As early as July 2006, the New York Department and other state regulators were engaged in discussions about the securities lending program with AIG.
        • Those discussions at first related to the issue of risk-based capital and how the companies were reporting their securities lending program on their financial statements.
        •  It was in the course of those discussions that we learned about the details of AIG’s securities lending program
      • Beginning in 2007……we insisted that the program be wound down and…
      • Neither the NYSID nor any other state regulator issued a written directive to AIG to wind  down the securities lending business.
        • The lack of a directive is not unusual.
        • Also, in the case of securities lending, raising written (and thus public) questions about the program could cause counterparties to contractually end the loans (versus continuing to roll over the loans) and cause forced sales and losses.
      • From its peak of about $76 billion it had declined by$18 billion, or about 24 percent, to about $58 billion by September 12, 2008.
      • At that point, the crisis caused by Financial Products caused the equivalent of a run on the AIG securities lending program. Borrowers that had usually rolled over their positions from period to period began returning the borrowed securities and demanding their cash collateral. From September 12 to September 30, borrowers demanded a return of about $24 billion in cash.
      • There are two essential points about AIG and its securities lending program. First, without the crisis caused by Financial Products, there is no reason to believe there would have been a run on the securities lending program.
    • Indeed, before September 12, 2008, the parent company contributed slightly more than $5 billion to the reduction of
      the securities lending program.
    • Whatever the problems at securities lending, they woul d not have caused the crisis that brought down AIG.
    • On July 21, 2008, New York issued Circular Letter 16 to all companies doing business in New York which expressed Department concerns about security lending programs.
    • On September 22, 2008, the Department sent a Section 308 letter to all life insurance companies licensed in New York requiring them to submit information relating to security lending programs, financing arrangements, security impairment issues and other
      liquidity issues. (Section 308 is the provision of the NYS Insurance Law that gives the Department the authority to request additional information between periodic examinations.) 
    • Through our chairmanship of the National Association of Insurance Commissioners Statutory Accounting Practices Working Group, we also successfully worked to have the NAIC adopt increased disclosure rules for securities lending programs. 
    • And it is worth noting that it was only AIG that was using securities lending in such a risky manner
    • <more>

AIG – Ring-Fencing Insurance Companies

  • OTS Report – 7B Life Insurance to AIGFP
  • Dinallo / Governor
  • Kanjorski / Paulson – GOV 2010 01
  • Regulatory Forbearance
  • 2008-09-13 – FRBNY Email re AIG Update – 1p  
  • NYSID: Dinallo outlined the same plan that AIG gave us earlier — ie move muni’s from P&C subs to parent, and parent send equity in life insurance subs to the P&C subs in return.
  • There are a number of multi-state regulatory hurtles to this, but Dinallo thinks it is possible to do.
  • Dinallo described P&C companies in NY and PA as having very large capital cushions, and so he thinks that they can accommodate this.
  • He also noted negative consequences in insurance markets in general if AIG goes down (ie cost of insurance is likely be much higher if they file) and negative consequencies in muni bond market if GICs default so regulatory forbearance can be justified politically.
  • They are very happy to speak with our experts (Elise and team) tomorrow with more details.
  • My impression is that while they are comfortable with the capital dilution at the P&C companies, they are less knowledgable and comfortable about the equity value of the life companies, so they have work to do on that front.
  • Starr v AIG – Case 1:11-cv-00779-TCW Document 281-1 Filed 08/22/14 Page 26/27 of 99 – 99p  
  • 10.3 The Credit Facility was fully secured by AIG’s assets.
  • (b) Bernanke: “The credit facility was fully secured by assets that AIG was able to pledge under the associated Guarantee and Pledge Agreement and that had an estimated value in excess of the maximum size of the credit facility” (PTX 561 at 5)
  • (e) Bernanke: “AIG had a very substantial business, a huge business, more than a trillion dollars in assets and a large insurance business that could be used as collateral to borrow the cash needed to meet Financial Products’ liquidity demands…the Federal Reserve will absolutely be paid back by AIG” (PTX 599 at 37).
    • “And so it was our assessment that they had plenty of collateral to repay our loan-because it was in a separate business that did have a lot of going-concern value and did have a lot of assets” (Id. at 60). 

2008-09-12_Federal_Reserve_Bank_AIG_Meeting_Notes

  • 2008 0912 – AIG Meeting Notes – 2p
    • AIG – Jacob Frenkel (Vice Chairman), Steve Bensinger (CFO), David Herzog (SVP & Comptroller), Robert Gender (VP & Treasurer), Alan Pryor (EVP – Financial Services Division)
    • FRBNY – Trish Mosser, Jim Mahoney, Bill Dudley
  • AIG is facing serious liquidity issues that threaten its survival viability.
  • Rating triggers:
  • GICs are issued out of AlG-Financial Products (AlG-FP), insured by the holding company.
    • downgrade by 1 rating agency leads to $10B in collateral calls, plus an additional $4B-$5B in portfolio obligations that are puttable if downgraded (total of $15B in liquidity needs)
    • downgrade by 2 rating agencies – additional $3B in liquidity needs
    • If downgraded, they must post half of the additional collateral within 2 days, and the other half in 10 days.
  • Securities lending (mostly out of the insurance companies) – about $69B in liabilities,
    • and the holding company has only enough cash to fund½ of that, if the sec lending counterparties turn away from the AIG name.
  • Unwinding in event of bankruptcy is likely to be very messy, because derivatives book is large and complex $2.7 Trillion, largely of very long-term structure products. $1 Trillion is concentrated in 12 large counterparties.
    • Book is very far from balanced, although they could not give a MTM value.
    • One of the challenges they are already facing is very aggressive marks from counterparties and strategic unwinding of “in the money” positions, and this will likely accelerate in coming days adding to the cash drain.
    • Their super senior CDO book is about $80 bn and at present they have approximately $19 billion in collateral posted against it.

2008 0912 – FCIC – 2008-09-12 Alejandro LaTorre Email to Geithner et al re Update on AIG

  • 2008 0912 – FCIC – 2008-09-12 Alejandro LaTorre Email to Geithner et al re Update on AIG – 2p 
    • 2008 0913 – FCIC – FRB (Brian Peters/NY/FRS) -FRBNYAIG00510 
  • We met with senior executives at AIG to discuss both their liquidity and risk exposure situation.
  • They estimate that they might have to pay out $18.6B across the firm over the course of next week if they were downgraded.
  • I. Liquidity
  • Breakdown of the $18.6B is:
  • Failed rolls on ABCP: $4.7B
  • Collateral posting on Muni GICs: $6B
  • Collateral posting on Structured Lease GICs: $3B
  • Collateral posting in derivatives contracts: $5B
  • As of close of business today, they have $8B in cash at the holding company.
  • Outside of the holding co., the insurance subs have about $68B in securities lending liabilities to the 12 largest firms.
  • Program is managed by the holding company (AIG Financial Products).
  • They are also large issuers of annuities and have $11 B of contingent exposure in their domestic retirement services business.
    • These are retail but run by large sponsors who could encourage accounts to put back the annuities in exchange for cash if they lose confidence in AIG.
    • These sponsors are U.S. banks who have exposure elsewhere.
    • This could be on top of the $18b payout above.
    • They have similar exposures in Japan but could not quantify the size.