AIG Discloses Federally Funded Payments


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Financial outrage seems to be a common topic these days — particularly that involved with federal bailout money, yesterday we saw AIG announcing that it’s “hands were tied” with regard to this year’s bonuses, and after significant pressure from Congress and the world, today, counterparties to credit default swap portfolios were made public.

The press release says that consultation with the Federal Reserve encouraged the disclosure of certain counterparties to a number of financial activities including the potential ethical faulted credit default swaps.

The $85 billion Federal Reserve liquidity loan to A.I.G. was used to make short-term payments on a number of financial instruments after collateral provisions in the swap agreements fell below necessity. C.D.S. related transactions accounted for a total of $22.4 billion of the emergency funds.

A credit default swap is a form of investment insurance where the ‘buyer’ receives payment only if the financial instrument in question defaults. In doing so, credit default swaps create a systemic risk where the cost of insuring over the whole market causes further assets to collapse, and the benefits the holders of the C.D.S. contracts.

Chairman of A.I.G., Edward Liddy said that billions of that $85 billion in financial aid flowed directly to dozens of financial counterparties and municipalities during a time of “acute stress in the economy.”

Liddy also commented that the disclosure of their counterparties does not modify the “commitment to maintaining confidentiality of business transactions” held by the company.

“Our decision to disclose these transactions was made following conversations with the counterparties and the recognition of the extraordinary nature of these transactions.”

The biggest counterparties to C.D.S. transactions were Societe Generale, who received $4.1 billion in posted assets, the Deutsche Bank ($2.6 billion), Goldman Sachs ($2.5 billion), Merrill Lynch ($1.8 billion) and Calyon ($1.1 billion). Barclays, UBS, DZ Bank, Wachovia, Rabobank, KFW and JPMorgan were also significant recipients.

Guaranteed Investment Agreements with U.S. municipalities accounted for $12.1 billion of the federal emergency funds distribution, with $1 billion going to municipalities in California and Virginia, and significant amounts being delivered to a range of municipalities in Hawaii, Ohio, Georgia, Colorado and Illinois.

$12.5 billion of A.I.G.’s bailout money was dedicated to a category called “maturing debt and other,” and the remaining accounted for funds in this recent publication — $5 billion — was equity dedicated to Maiden Lane III.

Based on the exposure information, analysts conclude that the Bank of America and Citigroup could have been in serious financial trouble in short-term had the bailout funds not been delivered to A.I.G.

The entire publication is available directly from A.I.G..

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