Q: AIG - Collateral Call Provisions - Was it Known About /  Common?

  • Market Value
  • Ratings Downgrades
  • 2010 0630 - 2008 Financial Crisis and Derivatives, Day 1, AIG Executives - CSPAN-Video
    • Cassano, Lewis, Sullivan

Collateral call provisions - Market Value

  • Yes - Cassano, Frost, Forster, Sun, 
  • ?? -market value vs ratings - Greenberg (GOV Hearing / FCIC Interview- )
  • No - Parks, Gorton, Sullivan, Bensinger, Lewis and Habayeb, Kevin McGinn, Diaz-Perez

2010-0630-AIG-Risk-Management - 29p

Yes - 

  • However, Mr. Cassano, Andrew Forster, Alan Frost and Jake Sun of AIGFP knew the contracts contained these terms.

No - 

  • Many current and former AIG executives – including Sullivan, Bensinger, Lewis and Habayeb - stated they did not know the contracts required collateral posting based on declines in the market value of the underlying bonds.
  •  CEO Sullivan said that to the best of his knowledge, he learned about the mark-tomarket terms in the SSCDS contracts in the collateral calls in the summer of 2007.4
  • AIG Chief Credit Officer Kevin McGinn told FCIC staff that he did not know that the SSCDS contracts included terms that required AIGFP to post collateral if there was a decline in the market value of the underlying collateral or if AIG was downgraded.8  He said that he first learned of these terms in the summer of 2007 after the first collateral call and that Mr. Diaz-Perez told him that he did also not know.9

  • Gene Park, a managing director in AIGFP’s structured credit group, stated that he was surprised to hear AIG had to post collateral on the multi-sector CDS contracts based on mark-to-market moves in the value of the underlying assets, rather than actual economic losses.10 He called his former colleagues after hearing about the collateral calls and they told him that they also did not know declines in market value would trigger the collateral call provisions.11 Park said that it was “rule Number 1 at AIG-FP”12not to agree to post collateral.

  • .What I can tell you from a risk control standpoint, it was exactly the same risk control procedures that were in place when Mr. Greenberg was in office that continued thereafter, both at the subsidiary level and at the parent company that ultimately resulted, obviously, in the decision taken to stop writing that portfolio.  (p160)

-- Martin Sullivan

 The Causes and Effects of the AIG Bailout- AIG Bailout Oversight Hearing

AIG’s business model did not fail, its management did.  (p14)

  • When they lost the triple A rating after I left the company, that should have been a signal to discontinue writing credit default swaps and hedge the book, because, by their own admission, in their 10-K filings they said that they would be required to put up more collateral.
    • So they knew that, they disclosed that.
  • And having done that, you would have thought that somebody, whether the  president, CEO or the chairman, should have called a halt and said, until we regain a triple A rating, we’re either going to slow down materially or discontinue, because if you have to put up more collateral, you got a problem.  (p25)

-- Maurice Greenberg - Former CEO AIG

2009 0402 - GOV - The Collapse and Federal Rescue of AIG and What It Means for the U.S.