American International Group (Symbol-AIG)

[kcowan]

To me the root cause is the lack of due diligence on the introduction of the new product, Credit Default Swaps. If Lloyds can insure Betty Grable's legs, I think AIG should be able to assess CDSs without relying on a ratings agency.

And their executive management should be able to set limits on how much new product they write up. The surest way for a life insurance company to go bankrupt is to grow that business without adequate capital reserves. It is the executive's job to balance growth against capital requirements.

Marking to market is a red herring.

[WishingWealth]

During an interview a couple of days ago, Hank Greenberg said the people (CEO) who took over after 'he left'* AIG did not know what they were doing; what was going on was way over their heads. They simply forgot to hedge the risks they took. As he would have done had he been there.

Given the complexity of these things, I can very well see a CEO in 'make believe' mode: Steady as she goes must have been the motto.

WW

* and no he still does not love Eliot Spitzer

[carnet]

The comment that i thought was the most telling from the greenberg interviews was that, had he been in charge, AIG would still have been in a bit of trouble but much less so. And, it was the size of the positions (and lack of understanding by management) rather than the complexity that was probably the biggest aig error. he also explicitly differentiated the firms that hedged and those that didn't....the ones that did a reasonable job at hedging still exist.

sounds like a reasonable explanation to me

[kcowan]

From Hank Greenberg (Charlie Rose video)
Hank still holds 12% of AIG common. They are not listening to him. Maybe you should.

[carnet]

sorry keith, I don't see it that way (and yes, i have seen the interviews)

[adrian2]

http://www.marketwatch.com/news/story/a ... 0D0DBE1%7D

AIG signs up for $85 billion Fed loan - Insurer effectively 'nationalized' after failing to raise capital in private market

Some big AIG shareholders have reportedly been trying to raise capital in private markets to avoid the government seizing control of the company.
But late Tuesday AIG said it signed a definitive agreement with the Federal Reserve Bank of New York for a two-year, $85 billion revolving credit facility.
As part of the deal, AIG will issue a series of Convertible Participating Serial Preferred Stock to a trust that will hold the new securities for the benefit of the Treasury. The Preferred Stock will get almost 80% of any dividends paid on AIG's common stock and will give the government almost 80% of the voting power. The securities will then be converted to common stock at a special shareholder meeting, AIG said.
The agreement leaves "AIG essentially nationalized," Bijan Moazami, an analyst at Friedman, Billings, Ramsey, wrote in a note to investors on Wednesday. "Shareholder efforts to prevent the government from taking an equity stake in AIG will prove fruitless."

The first comment to the story is a funny one: "So now that it's been nationalized, we should rename the company from American International Group to People's International Group, or from AIG to PIG".

[jay]

http://money.cnn.com/2008/10/16/news/economy/AIG_loan/index.htm?postversion=2008101616

WTF is going on? where is the money being spent?

[lilbit]

It's my understanding that AIG was the principal underwriter of insurance for Lehman bonds which come due next week. Lehman sold $158 billion worth of bonds, but (correct me if I am wrong), the hedge funds have the leveraged amount of $356 billion in insurance on those same bonds. Now that the U.S. government owns AIG, they will be writing the cheques.

[lilbit]

Here's an article in the London Telegraph that explains the situation better than I could:

http://www.telegraph.co.uk/finance/comm ... rkets.html

[WishingWealth]

A Marie-Antoinette moment at AIG.
In the NYTimes: http://www.nytimes.com/2008/10/19/opini ... wd.html?hp

...
Just when we thought executives of A.I.G., the insurance giant bailed out by taxpayers for $123 billion, had been shamed into stopping their post-bailout Marie Antoinette spa treatments, luxury sports suites, Vegas and California posh resort retreats, we were dumbfounded to learn that some A.I.G. execs were cavorting at a lavish shooting party at a British country manor.

London’s News of the World sent undercover reporters to hunt down the feckless financiers on their $86,000 partridge hunt as they tromped through the countryside in tweed knickers, and then later as they “slurped fine wine” and feasted on pigeon breast and halibut.

The paper reported that the A.I.G. revelers stayed at Plumber Manor — not the ancestral home of Joe the Plumber, a 17th-century country house in Dorset — and spent $17,500 for food and rooms. The private jet to get there cost another $17,500, and the limos added up to $8,000 more.
...

WW

Warning: Reading Maureen Dowd is suspected of being the cause of pustule eruptions on the face and neck of many readers; at times including me when I do read her columns.

[Bylo Selhi]

Former AIG director has exquisite timing

Businessman, lawyer and former Ottawa mandarin, Marshall (Mickey) Cohen, was the only Canadian to have a front row seat at the years-long, high-stakes soap opera known as American International Group (AIG). He was a board director of the insurance giant from 1993 until this past May, when he stepped down because he'd passed the age limit. Friends in Toronto, where the 73-year-old works at law firm Cassels Brock, recall a favourite story Mr. Cohen used to tell of his first board meeting at AIG. Accustomed to day-long board meetings, Mr. Cohen apparently called up to ask whether he could schedule a late afternoon appointment without it conflicting with the board confab scheduled to start at 10 a.m. He told friends at the time that the surprising answer was, "Don't worry, you'll be out by lunch." Now we all know just how good the living was at AIG, which is the beneficiary of a massive Washington bailout. But the troubles at the company, all of which Mr. Cohen viewed from his board seat, go back through years of a revolving door of CEOs, a fraud investigation by once-feared Wall Street prosecutor Eliot Spitzer, bitter court battles and, now, a subprime mortgage disaster.

...Toward the end of his board tenure, AIG became known for having the highest directors' fees in the United States - $250,000 (U.S.) to $435,000 annually. That's nice. But even nicer for Mr. Cohen was that according to SEC filings, he appears to have cashed in much of his stock remuneration earlier this year when the AIG share price was between $40 and $60 - as opposed to the roughly $2.25 of recent days.

[Peculiar_Investor]

A couple of recent articles about the company that provide an interesting view.

Behind AIG's Fall, Risk Models Failed to Pass Real-World Test and AIG and the Free Lunch Myth

Disclosure: Still hold a position in AIG.

[Peculiar_Investor]

Looks like a new deal is coming together.
http://online.wsj.com/article/SB122627437470412029.html
or http://biz.yahoo.com/rb/081109/business ... f_aig.html or
http://www.reuters.com/article/marketsN ... 0020081110 in case the WSJ link doesn't work for non-paying subscribers.

[beluga]

http://clusterstock.alleyinsider.com/20 ... ws-version

[Bylo Selhi]

A.I.G. Planning Huge Bonuses After $170 Billion Bailout

The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year...

The payments to A.I.G.’s financial products unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.

[beluga]

http://online.wsj.com/article/SB123707854113331281.html

Wall Street Journal says it's $450 Million in bonuses at AIG.

[Peculiar_Investor]

A.I.G. Lists Firms It Paid With Taxpayer Money

Financial companies that received multibillion-dollar payments owed by A.I.G. include Goldman Sachs ($12.9 billion), Merrill Lynch ($6.8 billion), Bank of America ($5.2 billion), Citigroup ($2.3 billion) and Wachovia ($1.5 billion).

Big foreign banks also received large sums from the rescue, including Société Générale of France and Deutsche Bank of Germany, which each received nearly $12 billion; Barclays of Britain ($8.5 billion); and UBS of Switzerland ($5 billion).

...

The Fed chairman, Ben S. Bernanke, appearing on “60 Minutes” on CBS on Sunday night, said: “Of all the events and all of the things we’ve done in the last 18 months, the single one that makes me the angriest, that gives me the most angst, is the intervention with A.I.G.”

He went on: “Here was a company that made all kinds of unconscionable bets. Then, when those bets went wrong, they had a — we had a situation where the failure of that company would have brought down the financial system.”

Disclosure: I still own a lottery ticket in AIG, which I got when AIG took over Sun American.

[Bylo Selhi]

Obama Orders Treasury Chief to Try to Block A.I.G. Bonuses

President Obama vowed to try to stop the faltering insurance giant American International Group from paying out hundreds of millions of dollars in bonuses to executives, as the administration scrambled to avert a populist backlash against banks and Wall Street that could complicate Mr. Obama’s economic recovery agenda.

“In the last six months, A.I.G. has received substantial sums from the U.S. Treasury,” Mr. Obama said. He added that he had asked Treasury Secretary Timothy F. Geithner “to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole.”

In strongly-worded remarks delivered in the White House East Room before small business owners, Mr. Obama called A.I.G. “a corporation that finds itself in financial distress due to recklessness and greed.”

“Under these circumstances, it’s hard to understand how derivative traders at A.I.G. warranted any bonuses at all, much less $165 million in extra pay,” Mr. Obama said. “How do they justify this outrage to the taxpayers who are keeping the company afloat?”...

[My bold.]

Why do we debase language such that bonuses ("rewards, honorariums, gifts to reward performance...") are paid not only to those who earned them but also to those who just showed up, let alone to those who were instrumental in the destruction of the bonus-laying goose? Same question re severance payments ("money, exclusive of wages, back pay, etc., paid to an employee who has tenure and who is dismissed because of lack of work or other reasons beyond the employee's control"), e.g. King Ralph's voluntary retirement?

[beluga]

http://www.boingboing.net/2009/03/16/is ... y-pus.html

Congress, as usual, is merely whining. Here's what it might do: Enact legislation that imposes a 100 percent income tax on bonuses or whatever the financial wizards want to call them at the companies receiving our tax dollars for their, and the economy's, survival. Congress will continue to whine.

I'm still not certain that Obama gets how bad the situation is -- a ward of the state looting the taxpayers' pockets and telling the president to shove it, and, until today, the president and his people meekly saying okay. In less stable nations, revolutions get started with less cause.

We will soon see if "Those days are over."

[WishingWealth]

One caveat about the bonuses.

During a recent interview with a higher up at one of those investment firms one thing that came up is that the 'traders' are paid a minimum salary (OK may be not USD 7.50 / hour) and the rest, that is a good part of the mega-hundreds of millions $ bandied around is commission for what [s]they kill[/s] business they bring; not a bonus per se.
And there lies a lot of the anger, for the layperson (most people) a bonus is something extra for a job well done; a commission is part of the salary.

On a related subject:
Mack from Morgan Stanley said recently, they already have a system where the 'performance bonus' are paid in the 3rd, 4th or 5th year after a sale/deal is done. And the bonus are scaled back if the deal was not kosher.
Now the world can sleep soundly, nobody in WS will ever find a loophole around that.

WW

[Shakespeare]

the mega-hundreds of millions $ bandied around is commission the 'traders' are paid a minimum salary (OK may be not USD 7.50 / hour) and the rest, that is a good part of the mega-hundreds of millions $ bandied around is commission

What's the difference between a "bonus" and a "tip" under that system - except for a few zeroes?

[WishingWealth]

What's the difference between a "bonus" and a "tip" under that system....

Not sure what the question is?

All they were saying is that a trader's pay is made up mostly of commission* and somehow, the word commission became bonus.

At some point, it may have made them feel better but now it's coming back to bite them in the ass.

WW

* I go by this definition:

4. A fee or percentage allowed to a sales representative or an agent for services rendered.
(From http://www.thefreedictionary.com/commission )

[Shakespeare]

Not sure what the question is?

The point I was making is that the base-salary-plus-commission system is similar to the base-salary-plus-tips system that some places use for waitresses, except for the size of the base salary and "tip".

[Peculiar_Investor]

With all the outrage, from Obama on down, the stock is up 80% today

[broke]

With all the outrage, from Obama on down, the stock is up 80% today

Yeh weird eh. U.S. gonna try to recoup AIG 160 million in bonuses. That will fix the economic crisis.

Against the 170 Billion that they were given, 160 million is like bill gates losing his wallet.