Big European Banks Benefit from AIG Bailout
With American International Group set to pay $165 million in bonuses to workers at the unit that nearly brought down the insurance giant, Congress and investors finally get some answers on the counterparties AIG paid last year, with emergency loans from the federal government.
In a statement released today the company disclosed the top recipients of the payments. An AIG spokesman said these companies represent the bulk of AIG's counterparties who received payments possible because of the emergency loan.
Among the counterparties receiving payments from an $85 billion loan to AIG in September, Societe Generale, Deutsche Bank, Goldman Sachs , Merrill Lynch, Citadel and municipalities in 20 states including California and Virginia.
Through three separate types of transactions, Goldman received an aggregate $12.9 billion. Among European banks, SocGen was the biggest recipient at $11.9 billion, Deutsche got $11.8 billion and Barclays was paid $8.5 billion, Reuters reported.
Societe Generale said it respected its counterparty agreements with AIG and that the collateral posted by AIG and amounts paid were fully consistent with its agreements.
Using the loan from the government AIG paid $22.4 billion in collateral to counterparties of credit default swaps written by AIG Financial Products (AIGFP). Those payments were made between September 16, 2008 and December 31, 2008, and included $4.1 billion to Societe Generale, $2.6 billion to Deutsche Bank and $2.5 billion to Goldman Sachs.
Another $43.7 billion went to pay counterparties of AIG's securities lending operations. The biggest recipients of those funds included Barclays which received a $7 billion payment, Deutsche Bank which received $6.4 billion and BNP Paribas and Goldman Sachs which received $4.9 and $4.8 billion respectively.
AIGFP used $12.1 billion from the loan to pay municipalities in 20 states between September 16th and December 31st. These payments were made to satisfy obligations of Guaranteed Investment Agreements, which as the name suggests are investments with a guaranteed rate of return.
In a press release AIG Chairman and Chief Executive Officer Edward M. Liddy said disclosing the names of its counterparties shows "that billions in government assistance flowed to dozens of financial counterparties and municipalities during a time of acute stress in the economy."
Mr. Liddy goes on to say AIG spoke with the counterparties before releasing the names. A move a spokesman for the Federal Reserve was done with encouragement from the central bank.
When the government stepped in with an emergency loan last fall, AIG was deemed "too big too fail". Taxpayers are now majority owners of the insurance company and the government has pumped another $85 billion into the firm.
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A Fed spokesperson told CNBC, "We commend the company for finding a balance between its concerns with confidentiality and the concerns of the public interest that may be served through the release of this information."
The unit responsible for AIG's near collapse, AIGFP is distributing bonuses of $165 million, bonuses AIG says it is contractually obligated to pay. AIGFP is responsible for writing billions of dollars in credit default swaps. CDS's as they are known are essentially insurance contracts against a bonds default. Shielded by AIG's then triple A credit rating, the unit did not adequately reserve against these contracts, leaving AIG in need to raise billions and billions of dollars when its rating was cut.
AIG has been criticized by lawmakers for not disclosing who received payments from those emergency funds.