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AIG: April 2009

Feds Zeroing In On Cassano's Valuation Of Credit Default Swaps

Zachary Roth | April 29, 2009, 12:40PM

Yesterday we told you that federal investigators are now zeroing in on two other AIG staffers, in addition to Joseph Cassano, as part of their probe into potential criminal wrongdoing at AIG. But a report (sub. req.) in the Wall Street Journal, which confirmed that information, also began to flesh out the more interesting question of just what the Feds suspect Cassano and his crew may have done wrong.

We knew that that December 2007 presentation, at which Cassano and others reassured investors that everything was basically fine, was drawing particular scrutiny from investigators. But the Journal adds some meat to that bone.

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Topics: AIG, Financial Crisis, Joseph Cassano, Martin Sullivan, Wall Street

AIG

AIG's Sullivan: "Highly Unlikely" We'll Have To Pay Out On Credit Default Swaps

Zachary Roth | April 28, 2009, 6:22PM

We took another quick look at that press release that AIG released in November 2007 about its third quarter earnings -- which is now reportedly being looked at by federal investigators as evidence that the firm may have deliberately misled investors.

And here's one line that jumps out. The release quotes CEO Martin Sullivan saying:

AIGFP reported an operating loss in the quarter due principally to the unrealized market valuation loss related to its super senior credit default swap portfolio. Although GAAP requires that AIG recognize changes in valuation for these derivatives, AIG continues to believe that it is highly unlikely that AIGFP will be required to make any payments with respect to these derivatives. (our itals)

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Topics: AIG, Financial Crisis, Martin Sullivan, Wall Street

AIG

Report: Feds Probing Two Cassano Deputies

Zachary Roth | April 28, 2009, 1:02PM

CBS News has some new developments in the criminal probe into AIG...

We knew that Joe Cassano, the former head of AIG's Financial Products unit, was in investigators' crosshairs for potentially giving misleading public statements about AIGFP's position. But the network now reports that the Justice Department is also looking closely at two of his deputies -- Andrew Forster, an executive vice president, and Thomas Athan, a managing director -- for the same reason.

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Topics: AIG, Financial Crisis, Joseph Cassano, Justice Department, Wall Street

AIG

Congress To DOJ And SEC: Hand Over AIG Docs Or We'll Subpoena Them

Zachary Roth | April 28, 2009, 10:21AM

Congress is upping the ante in its bid to get access to those insider reports on AIG compiled by a government monitor.

House Oversight chair Ed Towns, joined by ranking GOPer Darrell Issa, yesterday sent letters to the Justice Department and the SEC, threatening them with subpoenas if they don't hand over the information by this Thursday*.

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Topics: AIG, Bailout, Edolphus Towns, Financial Crisis, House Oversight, Justice Department, Securities and Exchange Commission, Wall Street

AIG

Congress To Ask Liddy: "What Caused The Downfall Of AIG?"

Zachary Roth | April 27, 2009, 10:22AM

AIG CEO Ed Liddy has already testified once before Congress about his firm's starring role in the financial crisis. But it looks like he'll soon be doing so again.

Last week, Rep. Ed Towns -- who chairs the House Oversight Committee, which is probing the causes of the crisis -- sent a letter to Liddy inviting him to appear May 6th. Among the topics that Towns intends to cover, according to the letter: "What caused the downfall of AIG?" and "what has AIG done with its Federal financial assistance?"

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Topics: AIG, Bailout, Ed Liddy, Edolphus Towns, Financial Crisis, House Oversight, Wall Street

BlackRock

Goldman Claims Trading Profit Had Nothing To Do With AIG; BlackRock Bond Chief Calls BS

Moe Tkacik | April 15, 2009, 3:39PM

On Monday afternoon Goldman Sachs posted a miserable first quarter for most of its typical investment banking divisions -- and a record $6.56 billion in revenue for its trading unit, giving the bank a net profit nearly double Wall Street expectations. Mere seconds into the question and answer session of yesterday's conference call with analysts, Guy Moszkowski of Merrill Lynch asked the question on everyone's lips: what did the $180 billion money vortex called AIG have to do with those numbers? Nothing, insisted chief financial officer David Viniar, who said the impact of the unwind for the quarter "rounded to zero" and later professing to Bloomberg he was "mystified" over the public fascination with the question.

Was Viniar lying? Yesterday we explained how Goldman appeared to have booked the cash flow from the bailout in its "orphan month" of December, making Viniar possibly technically truthful. But then Peter Fisher, who heads fixed income trading for the hedge fund BlackRock, all but accused Viniar of flat-out lying. With the seen-everything tone one might expect of the longtime central banker Fortune once described as "one of those behind-the-scenes guys who keep Wall Street from coming apart at the seams," Fisher told Bloomberg Surveillance host Tom Keane in an audio segment uploaded by the blog ZeroHedge that Goldman, as
rumored, had reaped huge "one-off" profits on the AIG unwind.

"So," Keane asked sarcastically, "did [Goldman] make those trading gains by taking the hide out of BlackRock?" That got a laugh, so Keane pressed:

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Topics: AIG, BlackRock, David Viniar, Goldman Sachs, Peter Fisher

AIG

Source: SEC (Unlike DOJ) Cooperating With Congress's Request For AIG Docs

Zachary Roth | April 15, 2009, 12:17PM

Earlier this morning, we reported that the Justice Department is dragging its heels on a demand from Congress to hand over information compiled by a highly placed government monitor at AIG.

But DOJ's recalcitrance is underlined by the approach of the SEC, which was also asked to turn over the monitor's information. According to a source on the House Oversight committee, the SEC has said it's complying with the request, and is expected to turn over the information shortly.

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Topics: AIG, Edolphus Towns, Financial Crisis, House Oversight, Justice Department, Securities and Exchange Commission, Wall Street

AIG

Justice Dragging Heels On Congress's Request For AIG Docs

Zachary Roth | April 15, 2009, 9:50AM

Last month, as we noted at the time, House Oversight committee chair Ed Towns formally asked the Justice Department for records kept by a government monitor, who since 2004 has had access to high-level internal deliberations at AIG.

But DOJ seems to be dragging its heels.

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Topics: AIG, Financial Crisis, Joseph Cassano, Justice Department, Wall Street

AIG

AIG Responds On PR Expenses: We'll Give Congress What It Wants, And Then Some

Zachary Roth | April 15, 2009, 9:06AM

AIG has responded to the letter from Rep. Ed Towns requesting information about the company's PR expenses, that we first reported on yesterday -- and which has now been picked up by Reuters, Bloomberg, and ABC News, among others.

Here's the statement they sent us:

In more than 30 media appearances since the beginning of the year and elsewhere, Mr. Greenberg and his lawyers have made false and misleading statements about AIG, including his role in creating AIG Financial Products and its credit default swap business, as well as the circumstances surrounding his forced departure from AIG during an accounting fraud investigation. We look forward to providing Congressman Towns with background on why it has been necessary to correct these and other misstatements, which are both misleading to the American public and damaging to AIG and its ability to repay taxpayers.

This issue is not about AIG's corporate public relations expenditures, which are down sharply since last year. It is about correcting Mr. Greenberg's false and damaging statements.

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Topics: AIG, Bailout, Edolphus Towns, Financial Crisis, House Oversight, Wall Street

AIG

Congress Probing AIG Spin Shop

Zachary Roth | April 14, 2009, 12:57PM

Congress is demanding information from AIG about reports that the bailed-out insurance giant has four PR firms on its payroll -- and about its recent PR blitz aimed at discrediting former CEO Hank Greenberg.

In a letter sent this morning to AIG chief Ed Liddy and obtained exclusively by TPMmuckraker, House Oversight committee chair Ed Towns requests detailed information on AIG's PR expenses, specifically mentioning Hill & Knowlton, and Mark Penn's Burson-Marsteller, two high-priced experts in Washington spin that have signed on to represent the firm.

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Topics: AIG, Bailout, Edolphus Towns, Financial Crisis, House Oversight, Wall Street

AIG

AIG FP Chief: Taxpayer Ire Over Bonuses "Probably Hurt Taxpayers"

Moe Tkacik | April 13, 2009, 11:25AM

Last month AIG Financial Products head Gerry "Che" Pasciucco met with employees of the unit that took down the economy, and relayed a request from upper management that they return those controversial "retention bonuses," adding that he felt the request was tantamount to blackmail. But he was only thinking of us taxpayers, he tells today's Wall Street Journal, in a story that says 20 AIG FP employees -- not including the unashamed bonus keeper Jake DeSantis, who published his resignation letter in the New York Times -- had quit amid the controversy:

Mr. Pasciucco said that as a result of the bonus controversy, some employees' children were harassed, and some had clubs ask them to resign. "It doesn't surprise me that some senior people said, 'You know what, I've had enough,' " he said...Mr. Pasciucco says the controversy "hurt morale" and "stunned people such that our wind-down has slowed down." He added, "Taxpayers probably have been damaged."

But will we ever know how much we've been damaged? A Financial Times story about AIG FP's decision to "opt out" of a new International Swaps & Derivatives Association protocol signed by 2,000 derivatives market participant intended to to make the complex credit default swap business less "opaque" casts more doubt on that:

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Topics: AIG

Berkshire-Hathaway

Barney Frank Rousts Credit Rating Firm For...Being Too Negative?

Moe Tkacik | April 9, 2009, 5:14PM

Credit rating agencies are coming under fire from Congress again -- but this time it's for being too pessimistic. After Moody's issued an unprecedented across-the-board negative credit outlook on all American cities and towns yesterday, House Financial Services Committee Chairman Barney Frank issued his own negative assessment of Moody's, and scheduled a hearing to investigate:

I am troubled by the action of Moody's Investors Service to issue a negative outlook across the board on America's municipalities, which could raise the interest rates on cities and towns making it more expensive to borrow funds for infrastructure improvements.

On the face of it, this seems like a perverse round of messenger shooting. But last March, as cities and towns across the country started getting flooded with demands for huge payouts rooted in arcane details of "swap" contracts they'd inked with banks that managed their bond offerings, Frank discovered something truly perverse: the public sector was being scammed on multiple fronts by the investment banks underwriting their bond offerings -- and the profits directly fed the disastrous trade of risky mortgage-linked credit default swaps that hastened the financial meltdown.

The scheme started at the credit ratings agencies, which keep two sets of standards for grading corporate and municipal bonds -- and municipalities are held to a much higher standard, as Frank explained in a hearing using Moody's own data:

I will be giving out this chart, sectoral breakdown of Moody's rated issuers and defaulters, 1970 to 2000, general obligation bonds, there it is. Number of issuers 14,775. Number of defaults, 0.

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Topics: AIG, AMBAC, Barney Frank, Berkshire-Hathaway, Mel Watt, Moody's Investors Service, Muncipal bonds, Municipal finance

AIG

Warren: Fire Top Management At AIG and Citi

Zachary Roth | April 7, 2009, 5:25PM

We're late to this, but it looks like Elizabeth Warren, the Harvard Law professor who chairs the Congressional Oversight panel for the TARP funds, is upping the ante.

After several months of raising the alarm about the Treasury Department's failure to attach strings to the bailout funds, to little apparent effect, Warren will issue a hard-hitting report this week that broadly indicts the Obama administration's approach to the financial crisis, reported the British paper The Observer over the weekend.

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Topics: AIG, Bailout, Citigroup, Elizabeth Warren, Financial Crisis, Treasury Department, Wall Street

AIG

In Letter To Liddy, Lawmaker Probes AIG Risk Practices

Zachary Roth | April 3, 2009, 5:32PM

Investigators are starting to zero in on the crucial issue of how much access AIG's risk control team had to Joe Cassano's deals.

Earlier this week, we wrote about a December 2007 presentation in which AIG execs assured investors that the firm's risk control officers looked closely at the credit default swaps made by Cassano's financial products unit. But as we noted, those assurances were contradicted last month by AIG CEO Ed Liddy, who told Congress that Cassano limited the access of the risk control team to his unit. And there's additional evidence (sub. req.) supporting Liddy's claim.

And now it looks like one Democratic lawmaker is picking up on that same discrepancy.

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Topics: AIG, Financial Crisis, Joseph Cassano, Wall Street

AIG

AIG's PR Blitz

Zachary Roth | April 3, 2009, 1:53PM

So as we reported yesterday, longtime AIG CEO Hank Greenberg went before Congress and placed the blame for the firm's collapse squarely on the execs who took over after he left in 2005 -- including on the crew currently at the helm, who Greeenberg said should be replaced.

But we've been struck by the ferocity of AIG's response to Greenberg, who's been skirmishing with the firm pretty much since he stepped down. Despite its awkward position as a ward of the state -- not to mention as the prime corporate face of the greed and recklessness that caused the financial crisis -- AIG has mounted an aggressive public-relations counter-offensive.

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Topics: AIG, Bailout, Financial Crisis, Hank Greenberg, Media, Wall Street

AIG

Greenberg To Kanjorski: "May I Finish?"

Zachary Roth | April 2, 2009, 2:56PM

Here's one more interesting extended exchange from Hank Greenberg's testimony, in which the former AIG honcho is being questioned by Rep. Paul Kanjorski about regulation of the firm's financial products unit London office, and about how AIG should be regulated going forward.

At one point, the witness, clearly not used to being ordered around, asks Kanjorski exasperatedly, "May I finish?" -- a request the congressman ignores.

Watch:

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Topics: AIG, Financial Crisis, Hank Greenberg, Wall Street

AIG

Greenberg: Get Rid Of AIG Management

Zachary Roth | April 2, 2009, 2:19PM

More nuggets of news from Hank Greenberg's testimony before Congress....

Greenberg, with the prominent Washington lawyer David Boies at his side, declared that government efforts to rescue AIG -- taxpayers now own almost 80 percent of the insurance giant -- have failed. He said that that stake should be reduced to 15 percent, and that the company should be restructured, and current management should be removed.

Greenberg has been embroiled in legal wrangling with AIG almost since his 2005 departure from the firm, amid allegations of accounting improprieties.

He also quarreled with AIG's decision, apparently blessed by the government, to pay back in full its counter-parties on the credit default swaps.

It would have been more beneficial for the American taxpayer if the federal government had walled off AIG Financial Products...and provided guarantees to AIGFP's counterparties rather than putting up billions of dollars in cash collateral to those counterparties.

And asked by Rep. Rep. Elijah Cummings whether he took any responsibility for the firm's collapse, Greenberg replied flatly: "No I don't."

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Topics: AIG, Bailout, Financial Crisis, Hank Greenberg, Wall Street

AIG

Lawsuit: AIG Not Just Screwing Over Taxpayers Anymore

Moe Tkacik | April 2, 2009, 2:02PM

AIG has allegedly stopped paying many of its bills in spite of its $180 billion in bailout cash, and a lawsuit filed against the firm by a Pennsylvania real estate developer managing 16,800 apartments owned by the global real estate arm paints a disturbing portrait of goings-on at the failed insurer that give emphatic new meaning to the term "zombie bank."

In his complaint, King of Prussia, Pa. property developer Mitchell Morgan alleges numerous counts of fraud and breach of contract, and depicts AIG as an absentee landlord to its multibillion dollar real estate portfolio, halting maintenance and renovation fees to hundreds of properties and potentially deepening the real estate crash further, sabotaging its own investments at the expense of taxpayers. Striking a populist tone notable for an outspoken Republican who once hosted a Rick Santorum fundraiser featuring George W. Bush in his own (generously-sized) home, Morgan's suit paints a portrait of a company that manages largely by never returning phone calls and blaming the Fed for everything:

There are real-world consequences for AIG's financial irresponsibility and its failure to honor its commitments. Employees whose jobs depend on the project renovations will be faced with loss of jobs in an economy whose unemployment rate continues to rise dramatically... Unlike many of the large real estate transactions that were occurring at the time, the goal of this Limited Partnership was not to purchase and "condo convert" or "flip" the properties, but to renovate them and continue to rent them to low income and middle class families...Because of the failure to timely approve and fund the required capital contributions, the Partnership's vendors, if not paid on time, which will constitute an immediate event of default under the Partnership's loan agreements. To be clear, these are real loans, not federal bailout loans that can simply be restructured.

Morgan is far from the only partner AIG has stiffed, but thus far he appears to be the only one to have sued, perhaps because he remembers how the insurer ran things in the boom years.

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Topics: AIG

AIG

Greenberg: "We Had No Problem Controlling Cassano

Zachary Roth | April 2, 2009, 2:00PM

Asked about whether Joe Cassano was given a free hand at AIGFP, Hank Greenberg, the former AIG CEO who stepped down in 2005, told Congress:

I'm sorry if you can't believe it, but I'm telling you, we had no problem controlling Cassano.

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Topics: AIG, Financial Crisis, Hank Greenberg, Joseph Cassano, Wall Street

AIG

Greenberg To Taxpayers: Drop Dead

Zachary Roth | April 2, 2009, 11:43AM

Nice guy, that Hank Greenberg.

Here, Rep. Jason Chaffetz (R-UT) asks the former AIG CEO whether he'd be willing to use a separate company that Greenberg has stocks in to pay back taxpayers for AIG's bailout.

And Greenberg pretty much tells him to shove it.

Watch:

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Topics: AIG, Bailout, Financial Crisis, Hank Greenberg, Wall Street

AIG

Greenberg: AIGers "Got Greedy"

Zachary Roth | April 2, 2009, 10:35AM

Greenberg:

You don't have control, and you don't have management oversight, things can go wrong. And they did.
...

I think they got greedy. I think they wrote considerably more business than they should have.

Hard to argue with that. But it only happened after Greenberg left, of course.

Also: this is coming from the man whose net worth was rated by Forbes at $3.6 billion in 2004.

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Topics: AIG, Financial Crisis, Hank Greenberg, Wall Street

AIG

Greenberg: Managers Failed (After I Left)

Zachary Roth | April 2, 2009, 10:30AM

From Hank Greenberg's testimony in front of Congress, which just started:

AIG's business model did not fail. Its managers did.

In 2005, Greenberg stepped down after a 37-year run as AIG's CEO.

We'll be following his testimony closely.

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Topics: AIG, Financial Crisis, Hank Greenberg, Wall Street

AIG

Did More AIG Execs Mislead Investors About Risks?

Zachary Roth | April 1, 2009, 2:46PM

Yesterday, we told you about how several AIG execs reassured investors at a December 2007 presentation that company risk officers had closely scrutinized the transactions of the financial products unit -- the part of AIG that made those credit default swaps. And about how several pieces of evidence have surfaced in recent months that appear to contradict those claims.

This is serious business: US and British prosecutors are already investigating former AIGFP chief Joe Cassano, and, it appears, former AIG chief Martin Sullivan, for potentially painting an unduly rosy picture of the firm's exposure to the sub-prime crash -- and are said to be focusing on that December 2007 presentation in particular. So it's worth taking a moment to lay out what exactly we know here, and what it might amount to.