AIG

Did Risk Team Look At Cassano's Deals? AIG Execs Offer Contradictory Claims

Zachary Roth | March 31, 2009, 6:42PM

We've told you that the Feds are looking at that December 2007 presentation that Joe Cassano gave for investors, to determine whether he, along with AIG CEO Martin Sullivan, knowingly gave an unduly rosy picture of AIGFP's exposure to sub-prime losses.

But a review of that presentation suggests that a few other AIG execs may also have shaded the truth, to put it mildly, on a different question.

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AIG

Cassano: CDOs Are "Money Good Assets"

Zachary Roth | March 31, 2009, 5:23PM

Earlier today, we picked out some fascinating-in-hindsight excerpts from a May 2007 presentation given by Joe Cassano, then the head of AIG's financial products unit.

Since then, we've been looking at a similar presentation (via Nexis) for investors given by Cassano and other AIG execs in December of that year. By that time, the collapse of the subprime housing market could no longer be downplayed, and Cassano's appears more anxious than ever to reassure clearly nervous investors about AIG's exposure to losses on its credit default swaps.

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AIG

Joe Cassano, In His Own Words

Zachary Roth | March 31, 2009, 2:41PM

How did Joe Cassano -- the man who brought down AIG, and with it, perhaps the entire global financial system, with those disastrous credit default swaps -- talk about what his unit, AIG Financial Products, was up to?

We've been looking through a presentation that Cassano gave to a group of entrepreneurs and analysts in May 2007 -- just as the extent of the collapse of the sub-prime market was becoming clear. In his speech (accessed by Nexis), Cassano detailed AIGFP's various business lines, and, of course, painted a rosy picture of the unit's future earning potential.

The entire performance has an almost poignant quality, looked at in light of the tumult that would soon befall AIGFP. (Less than nine months later, it would announce Cassano's resignation after an $11.1 billion writedown of credit-default swaps.) But we've pulled out a few of Cassano's comments that day that are particularly noteworthy...

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Bailout

Bush Bailout Architect Lands On His Feet -- Helping Private Clients Adjust To Brave New World Of Finance

Zachary Roth | March 30, 2009, 1:29PM

We should have seen this one coming -- government officials who helped respond to the financial crisis, now cashing in by helping private sector clients "navigate the new world of finance."

That's what David Nason, a former assistant treasury secretary under Hank Paulson will be doing for clients of Promontary Financial Group, which he's joining as a managing director, reports the Wall Street Journal (sub. req.). Nason, who had a major hand in drawing up Treasury's bailout plan last fall, "is expected to advise big financial institutions on everything from how to participate in the government's rescue programs to meeting regulatory requirements."

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AIG

Wife Of London-Based AIG Exec Claims He's Aiding Federal Probes Of Cassano

Zachary Roth | March 30, 2009, 12:01PM

Following in the footsteps of martyr to truth Jake DeSantis, another AIG Financial Products exec just can't help himself from going public about how unfairly he's being treated by just about everyone from his employer, to Congress, to Andrew Cuomo. But a blog post by his wife may be even more interesting....

The blog Clusterstock has posted a long rant from London-based Paul Harriman, which originally appeared on the site Live Journal. The predictable gist: Harriman complains that without his bonus, he won't be able to afford his $10,000 a month apartment and his kids' school fees.

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Financial Crisis

Genius! Federal Pension Guarantor Switched From Bonds To Risky Stocks Last Year

Zachary Roth | March 30, 2009, 11:27AM

In the highly competitive race for the title of "Stupidest Recent Financial Decision Made By A Government Official", this one's got to be a strong contender....

The Boston Globe reports:

Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.

Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds.

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John Sununu

Have Oversight Panelists Complained About Sununu's Conflict? Sounds Like It...

Zachary Roth | March 27, 2009, 5:21PM

Remember that little conflict of interest problem for John Sununu that we revealed last month?

The former New Hampshire GOP senator, who sits on the Congressional Oversight Panel that monitors the TARP funds, was recently named to the board of a firm that's a subsidiary of Bank of New York Mellon -- which not only got TARP money itself, but also administers the program for the Treasury Department.

Sununu insisted to the Associated Press, which picked up on our report, that this really wasn't a conflict. But it looks like at least some of Sununu's fellow panel members disagree.

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AIG

Taibbi To AIG-er DeSantis: "Be A Man And Deal With It"

Zachary Roth | March 27, 2009, 4:41PM

Some Friday afternoon catharsis ...

In one of those perfect matches of writer and subject, Matt Taibbi responds to that op-ed writing AIG-er Jake DeSantis -- and says all the things you'd probably forget to say if you ever ran into deSantis, but then would think of in the shower when it was too late.

Wall Street

The TARP Email Trail: AIG And Citi Execs Clueless And Arrogant, Kashkari "Tough To Watch"

Moe Tkacik | March 27, 2009, 3:48PM

Following a few months of courtroom wrangling, Fox Business News has obtained a much-redacted 10,096 pages of Treasury Department documents on the bank bailout. Scrubbed of "proprietary" information and what would presumably be their most explosive revelations, the communiques exchanged between the Bush Administration and executives at Citigroup and AIG read something like "Dumb and Dumber and I Know It Seems Impossible But Even Dumber Than That." The first role would be played by the TARP overseer and cheerleader for the Italian automobile industry Neel Kashkari, whose aides nervously emailed one another as they watched him testify before the House Financial Services Committee on what exactly he was doing with their money.

Nason: How's it going?

Zuccarelli: Bad. Serious questions, too, not "chump" type questions. They're going to start to break Neel down soon, I'm getting worried he's going to start snapping.

Nason: This AIG stuff is tough to watch.

Zuccarelli: They killed him on exec comp. He didn't know answer.

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AIG

How Did AIGFP Shut Out Risk Officers? Congressman Wants To Know

Zachary Roth | March 27, 2009, 3:44PM

Earlier today we flagged that exchange between AIG CEO Ed Liddy and Rep. Gary Peters (D-MI), during Liddy's testimony last week.

Peters asked Liddy about AIG's how AIG's internal risk management procedures could have failed so badly. In response, Liddy said that those procedures "generally were not allowed to go up into the financial-products business" that caused the firm's collapse.

When Peters pressed Liddy on how that could be, the CEO replied:

[Y]ou need to get the people who ran FP -- Mr. Cassano -- and the people who ran AIG before my arrival, and ask them that question.

Peters clearly agrees with us that this is worth some follow up: a spokesman from his office tells TPMmuckraker that they've contacted AIG for a fuller explanation of just how the financial products unit was able to operate in such secrecy.

So you can add Peters' office to the growing list of bodies that's probing, formally or informally, various related aspects of the AIG fiasco.

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AIG

Did Cassano Shut Out AIG Risk Officers?

Zachary Roth | March 27, 2009, 1:38PM

Did AIG's entire risk management team fall down on the job? Or, like the firm's auditors, were they prevented from doing it?

Yesterday we told you about Bob Lewis, AIG's chief risk officer, who still has his job despite a rather obvious failure to ensure that the firm wasn't taking on an unmanageable level of risk.

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Bernard Madoff

Report: UK Expects To Soon Charge Others In Madoff Scheme

Zachary Roth | March 27, 2009, 12:21PM

The Madoff trail is shifting, at least in part, across the Atlantic. And investigators are wondering whether the Ponzi scheme was a family affair.

A report from the Wall Street Journal's London bureau contains three important new pieces of information.

1) "U.K. authorities investigating Bernard Madoff's massive Ponzi scheme believe criminal offences have been committed by people other than the New York financier and expect to start filing charges within months, according to investigators."

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Bailout

Lawmakers Call On Bailout IG To Probe AIG Counter-Party Payments

Zachary Roth | March 27, 2009, 11:45AM

The effort to get to the bottom of those payments by AIG to its counter-parties is heating up.

Earlier this week, we noted that several different efforts to investigate that question. Now, reports the New York Times, Rep. Elijah Cummings (D-MD) has sent a letter, signed by 26 other House Democrats, to Neal Barofsky, the inspector general for the TARP funds, calling on him to probe the matter.

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AIG

Looks Like AIG's Chief Risk Officer Still Has A Job!

Zachary Roth | March 26, 2009, 6:10PM

It seems safe to say that if your job at AIG was to ensure that the company was managing its credit risks effectively, you failed.

Which is why it's interesting that the man who has had that post since at least 2000, Bob Lewis, still appears to have the job today.

An official list of AIG execs obtained by TPMmuckraker and created after CEO Ed Liddy took over last September shows Lewis as the firm's Chief Risk Officer and an executive vice president.

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Andrew Cuomo

Cuomo Wants Info On AIG's Credit Default Swaps

Zachary Roth | March 26, 2009, 4:52PM

Is New York Attorney General Andrew Cuomo's probe of those AIG bonuses expanding?

Maybe kind of.

The Wall Street Journal reports (sub. req.) that Cuomo plans to subpoena AIG for documents about the credit default swaps that brought the company to its knees.

AIG has claimed that it paid those lavish bonuses because it needed to keep employees of its Financial Products unit in place, so that they could do the difficult work of unwinding the disastrous deals. But in some cases, AIGFP paid back its counter-parties in full, raising questions about how complex the job really was -- and therefore, whether AIG needed to spend so much money to get their employees to stick around and do it.

Bonuses aside, the subpoena request suggests that Cuomo's probe could end up shedding important light on the underlying question of how AIGFP managed to take on so much risk through its credit default swaps that it toppled the company and put the entire financial system at risk.

Cuomo has already obtained from AIG the list of employees who got bonuses, and has said his office is considering security concerns before deciding whether to release it.

Other investigators are also looking into the bonuses, and the swaps deals. A staffer for the House Oversight committee told TPMmuckraker earlier this week that the committee planned to soon probe the question of who at AIG knew about how the swaps were being conducted.

AIG

AIG Execs: We're Being Extorted!

Moe Tkacik | March 26, 2009, 12:31PM

No really, AIG Financial Products chief Gerry Pasciucco told a meeting of his European based derivatives gurus that the money vortex CEO Ed Liddy's request that they return their bonuses amounted to "blackmail." That's according to a London-based recipient of one of the bonuses -- London, you'll recall, is where the inimitable Joseph Cassano was employed -- who furnished the news agency with emails showing that AIG compliance officer David Haig had actually asked the country's Serious Organised Crime Agency to probe whether the (voluntary) requests could be legally considered extortion. Well what a fascinating use of government-bankrolled hours for the taxpayers of both countries!! But wait, don't shoot yourself, hear the anonymous employee out...

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Bernard Madoff

Looking For A New Career? Try Fraud Investigator.

Zachary Roth | March 26, 2009, 11:14AM

One of the few growth industries in the current economic climate? Fraud investigators.

Allegations of fraud are increasing, as the financial crisis drags on. As a result, reports the New York Times, people who are skilled at following the money have rarely been more in demand.

The FBI is recruiting new hires to work on a glut of cases -- it had more than 1600 open mortgage-fraud investigations at the end of fiscal 2008, almost twice as many as two years earlier.

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Bailout

Lawsuits: Lewis, B of A, Misled Shareholders On Merrill Deal

Zachary Roth | March 25, 2009, 5:26PM

This is just the headache that beleaguered Bank of America CEO Ken Lewis needs...

It looks like B of A is facing legal woes as a result of its hastily arranged deal to buy Merrill Lynch last fall, and its subsequent statements about Merrill's finances.

The Wall Street Journal reports (sub. req.):

Five public pension funds are seeking lead status in a class-action suit against Bank of America Corp., alleging that the nation's largest bank by assets made "untrue statements" in the run-up to its purchase of Merrill Lynch & Co. and did not disclose material information to shareholders.

The funds claim to have lost $274 million on their Bank of America investments between July 21, 2008 and Jan. 20, 2009.

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AIG

Source: Cassano In Congressional Investigators' Sights

Zachary Roth | March 24, 2009, 4:47PM

Another set of investigators is hot on the trail of Joseph Cassano, the man who walked away with a multi-million dollar golden parachute after spearheading the credit default swaps that brought down AIG.

Investigators for the House Oversight committee intend to interview Cassano about his role in the firm's collapse, and have already contacted his lawyer, a committee staffer told TPMmuckraker.

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AIG

Longtime AIG Chief Greenberg To Testify On Firm's Collapse

Zachary Roth | March 24, 2009, 3:42PM

Former AIG CEO Maurice "Hank" Greenberg will appear next week before a congressional committee probing the firm's central role in causing the financial crisis, according to a committee staffer.

Greenberg -- who had run AIG since 1968 before stepping down in 2005 -- will be questioned by members of the House Oversight committee about the credit default swaps that led to his former firm's collapse last year. "No one knows AIG better than Greenberg," said the staffer. "He ran every minute detail of that company -- nothing took place without his knowledge."

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Bernard Madoff

Madoff's Prison Number Is A Lottery Winner

Zachary Roth | March 24, 2009, 2:45PM

At least someone got something out of the Bernie Madoff affair.

Ralph Amendolaro of Queens, New York, used the confessed Ponzi schemer's prison number to play the lottery, after seeing it on the front page of the New York Daily News earlier this month. And a few days later, that number -- 61727-054 -- came up, winning the lucky construction worker $1500.

Amendolaro told the Daily News that he thought at the time: "I'm going to be a winner with this guy even though everyone lost money with him. Somebody had to get a little lucky with him."

He said he plans to spend some of the money on a birthday trip to Vegas with his wife and some friends, and also to take his family out to dinner.

And he added that if Madoff hears about it, "he'll probably want a cut."

Goldman Sachs

Government Sachs: TARP Funds Just The Tip Of The Iceberg For Goldman

Zachary Roth | March 24, 2009, 12:39PM

Goldman Sachs is planning to give back the TARP money it got last fall, "ideally in the next month," reports the New York Times.

The firm is saying it just can't handle the level of government oversight that comes along with the funds, especially amid the outrage over AIG bonuses. "It's just impossible to run our business in this environment," one exec told the Times' Andrew Ross Sorkin.

Sounds great.

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AIG

Cuomo: Most AIG Bonus Money Went To Foreigners

Zachary Roth | March 23, 2009, 6:39PM

Nine of the top ten AIG bonus recipients have given back the payouts, according to Andrew Cuomo, the New York Attorney General who is probing the issue.

Cuomo also said, on a conference call this afternoon, that 15 of the top 20 bonus recipients from the firm's financial products unit, which is at the center of the bonus furor after causing the company's collapse last year, have returned their awards.

But he added something else that may wind up being less exculpatory for AIG: 47 percent of the $165 million in retention bonuses was awarded to Americans, he said, declaring that he expected to get that money back. That means 53 percent -- around $87 million -- of taxpayer money went to foreigners, and is unlikely to be recouped.

Cuomo said he didn't think it would be in the public interest to release the names of those who gave back the bonuses, and that his office is still assessing the risks of releasing any names at all.

AIG

Connecticut AG Subpoenas AIGers For Testimony On Bonuses

Zachary Roth | March 20, 2009, 5:58PM

This could be good.

Not content with letting New York Attorney General Andrew Cuomo hog the spotlight, his Connecticut counterpart, Richard Blumenthal, has subpoenaed several AIG employees, incluing CEO Ed Liddy, to testify about those bonuses, totaling $165 million, at a legislative hearing March 26th.

Said Blumenthal in a statement:

Now living off supersized taxpayer-paid bonuses, these AIG employees have a moral and legal obligation to appear at this legislative hearing and disclose details about corporate compensation to employees," said Blumenthal in a written statement.

AIG Financial Products, the unit that caused the company's collapse and got those bonuses, is absed in Wilton, Connecticut.

These hearings should be more good theater, but it's worth asking: given that Liddy has already testified, and Cuomo will likely soon release the names of the bonus recipients, what more pertinent information will AIG employees be able to provide? Guess we'll find out...

AIG

Cuomo Has Names Of AIG And Merrill Bonus Recipients

Zachary Roth | March 20, 2009, 4:13PM

It looks like Andrew Cuomo holds all the cards. He now has in hand the names of the recipients of both of the corporate payouts that have provoked all that populist rage lately.

A judge earlier this week ruled that Bank of America had to turn over the list of names of the 200 highest-paid Merrill Lynch bonus recipients, that the New York Attorney General has been seeking. According to reports, B of A, which now owns Merrill, did so yesterday.

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AIG

Cassano Lawyer Repped WorldCom

Zachary Roth | March 20, 2009, 3:03PM

Earlier today, we told you that in the view of one expert, some of the allegations about former AIGFP chief Joe Cassano echo those in the WorldCom case from earlier this decade, which ultimately sent former CEO Bernie Ebbers to jail -- in particular the charge, made in at least one investor lawsuit, that Cassano obstructed the work of his firm's auditors.

And it turns out that there's another parallel with the WorldCom case. Cassano's lawyer, white-collar crime expert Joseph Warin of Gibson, Dunn, and Crutcher, was hired by WorldCom in 2003 to conduct an internal investigation into allegations that it re-routed long-distance phone calls in order to get out of paying billions of dollars in fees owed to other companies.

That's a different charge from the one that felled Ebbers. Still, could it be another small sign that this whole AIGFP saga is going to take its place in the pantheon of high-profile white-collar fraud cases?

And while we're on the subject of Warin, here's another fun fact. In 2004, Washingtonian magazine compiled a list titled "Who to Call When You're Under Investigation." Guess who was on there.

Sounds like Cassano is a Washingtonian reader.

AIG

Expert: Allegation That Cassano Blocked Auditor Is "Analogy To Obstructing Justice"

Zachary Roth | March 20, 2009, 1:11PM

We've told you about allegations from AIGFP's internal auditor, Joseph St. Denis, that the unit's leader, Joseph Cassano deliberately thwarted St. Denis' effort to do his job. And according to one expert we just spoke to, those allegations, if borne out, could put Cassano in serious jeopardy.

To review: In a letter to congressional investigators, St. Denis claimed that Cassano repeatedly prevented him from participating in the process in which AIGFP valued its assets -- a crucial piece of the accounting puzzle St. Denis was hired to put together. According to St. Denis, Cassano told him in September 2007 (a time when evidence of the assets' exposure to the subprime mortgage mess was mounting): "I have deliberately excluded you from the value of the [credit default swaps] because I was concerned you would pollute the process." In addition, around the same time, Cassano berated St. Denis for pointing out accounting irregularities in a target company's hedge accounts. Cassano created a new organizational structure for AIGFP which isolated him from AIG proper, significantly reducing his influence. St. Denis resigned soon after, citing Cassano's moves as the reason.

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AIG

The Rise And Fall Of AIG's Financial Products Unit

Zachary Roth and Ben Buchwalter | March 20, 2009, 9:36AM

As we delve into the back-story behind the collapse of AIG, we thought it might be useful to lay out some key factual information about the firm's Financial Products unit, known as AIGFP, whose disastrous credit default swaps brought the company to its knees. How and when did AIG Financial Products get started? Who ran it, and from where? How did it get into credit default swaps, and what exactly are they, anyway? And how did this group of derivatives traders eventually wind up bringing down one of the most admired financial firms in the world?

So here's a rundown of some of the key developments in AIGFP's tumultuous history -- many gleaned from a superb three-part December 2008 Washington Post series on the unit (parts 1, 2, and 3):

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AIG

Cassano's Lawyer Is White Collar Crime Expert

Zachary Roth | March 19, 2009, 6:31PM

We've told you that Joe Cassano, who ran the AIG unit that made those credit default swaps, has hired a lawyer in connection with an ongoing Justice Department investigation.

And from the looks of the lawyer in question, Cassano is taking the charges very seriously indeed.

F. Joseph Warin, who works out of the Washington, DC office of the prestigious Los Angeles-based law firm Gibson, Dunn, & Crutcher, is, according to his bio, a former assistant US Attorney who specializes, perhaps unsurprisingly, in white collar crime and securities enforcement, and chairs the firm's White Collar Defense and Investigations Practice Group*.

Investigators are reported to be examining, in particular, whether Cassano and other AIG execs committed fraud by intentionally making misleading public statements about the firm's level of exposure to losses on its credit default swaps.

Warin didn't return a call from TPMmuckraker. But his assistant asked, unprompted, whether we were calling about Cassano.

Sounds like he's getting a lot of calls.

*This sentence has been corrected from an earlier version, which incorrectly reported that Gibson, Dunn is based in Washington, DC.

AIG

AIG Gives Names Of Bonus Recipients To Cuomo

Zachary Roth | March 19, 2009, 4:50PM

New York Attorney General Andrew Cuomo has received the names of the AIGers who got bonuses, and is weighing whether to release those names, his office has announced.

Cuomo had subpoenaed AIG for the names. Yesterday, the firm's CEO, Ed Liddy, declined to tell Congress he would cooperate with the subpoena, citing concerns about the safety of employees whose names were released.

Cuomo's full statement follows after the jump....

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AIG

Is Cassano Vulnerable To Fraud Charges That Felled Ebbers, Lay?

Zachary Roth | March 19, 2009, 2:51PM

Yesterday we laid out some preliminary evidence that AIG execs -- led by Joseph Cassano, who ran the firm's financial products unit -- may have committed criminal fraud in connection with those credit default swaps that brought the company down. And as we noted, federal investigators have been probing that very question.

A former federal fraud prosecutor confirmed to TPMmuckraker today that criminal fraud occurs when someone willfully misstates the facts about a company's position in any public statement -- such as an SEC filing, an earnings release, a presentation to investors, or even a press conferences -- and when there's a clear financial motive for doing so. The former prosecutor further confirmed that the facts of the AIG case as currently known -- in which Cassano and other AIG execs made what turned out to be incorrect public statements, which had the effect of concealing from investors the company's true exposure to losses on its swaps -- could potentially lead to such charges, but declined to go further without access to the details of the investigation.

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Bailout

Bailout IG: "Who Knew What, When, And Why" On AIG Bonuses?

Zachary Roth | March 19, 2009, 1:06PM

Neil Barofsky, the special inspector general for the bailout, told Congress this morning that he'll probe the AIG bonuses -- including what role the Treasury Department played.

In words that may send a chill up Tim Geithner's spine with their invocation of Watergate, Barofsky, asked specifically by Republicans about the Treasury Secretary's role, said his probe would seek to find out "who knew what, when and why," in regard to the bonuses.

He continued:

Preliminary information we have seen indicates that the TARP contract between AIG and Treasury that was entered into back in November specifically contemplated the payment of bonuses and retention payments to AIG employees, including AIG's senior partners.

Barfosky added that he'd work with Justice Department, as well as the office of New York Attorney General Andrew Cuomo, who is probing the bonuses, to look at ways that the money can be returned to taxpayers.

Bailout

Report: Citi To Spend Around $10 Million On New Office For Pandit, Others

Zachary Roth | March 19, 2009, 12:19PM

This should go down well.

Citigroup, which has gotten $45 billion in bailout money, plans to drop around $10 million on constructing new offices for CEO Vikram Pandit and other execs, Bloomberg reports, after examining documents filed with the New York City Department of Buildings.

It sounds like the new offices will be pretty sweet:

Plans and instructions for the bank's contractors, on file with the city, specify the installation of at least one Sub-Zero Inc. refrigerator and icemaker in the renovated space, along with "premium grade" millwork and Madico Inc. "Safety Shield 800" blast-proof window film. The project encompasses 17 private offices, each with space for administrative assistants, as well as two conference rooms and open areas with "soft seating," according to the plans.

Former Merrill CEO John Thain has been widely slammed for spending $1.2 million on a 2007 redecoration of his office suite - the same year his company suffered massive losses and needed to be rescued by Bank of America*.

As for Pandit, in January he canceled an order for a corporate jet after it drew outrage, and later told Congress:

I get the new reality and I'll make sure Citi gets it as well.

* This sentence has been corrected from an earlier version.

AIG

Cuomo: I'll Release Names Of AIG Bonus Recipients

Zachary Roth | March 19, 2009, 10:23AM

It hasn't gotten much attention, but New York Attorney General Andrew Cuomo said yesterday that he'd publicly release the names of the AIG bonus recipients, reports the New York Times.

Cuomo is investigating the payouts, as well as those made by Merrill Lynch and several other Wall Street firms. He issued a subpoena for the AIG names earlier this week.

His declaration followed the news that a court has ruled that Bank of America, which owns Merrill, must give him the names of the Merrill recipients. That ruling suggests that Cuomo will likely also get the AIG names. AIG lawyers had referred frequently to the Merrill case this week, and had delayed giving Cuomo the names pending the outcome of that case.

Yesterday, AIG CEO Edward Liddy declined to assure Congress he would cooperate fully with Cuomo's probe, citing concern for the physical safety of employees who received bonuses, were their names to be made public.

Bank of America

Court: B of A Must Reveal Names Of Merrill Bonus Recipients

Zachary Roth | March 19, 2009, 9:52AM

While we've all been focused on those AIG bonuses, there's been a major development in the Wall street bonus saga that seemed, a week ago, like the ultimate in outrageous corporate behavior.

A court ruled yesterday that Bank of America will have to turn over to New York Attorney General Andrew Cuomo the names of the Merrill Lynch employees who received a total of $3-4 billion in bonuses. Bank of America, which since the start of the year has owned Merrill, had been resisting giving Cuomo the information.

Cuomo said he could release the names as soon as today.

Merrill approved the bonuses last December under then-CEO John Thain, on an accelerated schedule, apparently to ensure they went into effect before the firm came under the control of B of A.

AIG

Did Cassano And AIG Commit Fraud?

Zachary Roth | March 18, 2009, 5:57PM

AIG chief Edward Liddy endured his anticipated ritual flaying today by Capitol Hill lawmakers angered by those bonuses. But, as Josh has been writing about over at TPM, there's mounting evidence that some current and former AIG execs could have much more to fear than angry questions from Gary Ackerman when all is said and done.

Since at least June 2008, the Justice Department has been investigating (sub. req.) whether AIG intentionally -- and criminally -- overstated the value of its credit default swaps, hiding its dire position from investors and government regulators. Joseph Cassano -- who during the period at issue ran AIG's financial products unit, AIGFP, which made those disastrous swaps, out of a London office -- has reportedly hired a lawyer in connection with that investigation. Britain's Serious Fraud Office is said to be on the case as well.

Read more »

AIG

Liddy: We'll Try To Cooperate With Probe -- But No Promises!

Zachary Roth | March 18, 2009, 4:15PM

Here, despite the efforts of Rep. Gary Ackerman, AIG CEO Liddy resists saying that he'll cooperate fully with Andrew Cuomo's investigation into those bonuses...

AIG

AIG Hate Mail

Zachary Roth | March 18, 2009, 3:27PM

Arguing that disclosing the names of the AIGers who got bonuses could put them at physical risk, CEO Ed Liddy reads some of the angrier mail he's been getting lately:

Barney Frank appears unimpressed.

AIG

Cassano's Million Dollar A Month Contract

Zachary Roth | March 18, 2009, 12:41PM

Here's that agreement that Joseph Cassano signed with AIG in March 2008, which gave him a $1 million a month consulting contract, after he had run the company into the ground.

AIG

Congress Releases AIG Bonus Contracts

Zachary Roth | March 18, 2009, 12:31PM

Barney Frank's House Financial Services committee has released the contract that governed those AIG bonuses. We've posted it here.

No names are given, but you can see the terms of the payments.

AIG

2003 Lawsuit Suggests AIG Wasn't Always So Careful To Honor Bonus Deals

Zachary Roth | March 17, 2009, 6:35PM

Since the AIG bonus brouhaha broke over the weekend, the hobbled insurance giant has essentially been claiming it had to make the payments because not doing so could have created a "defalt event," potentially exposing taxpayers to losses of hundreds of billions down the road.

That may or may not be a legitimate argument (most experts seem to be saying "not"). But it's worth noting that just a few short years ago, there was a case in which AIG wasn't quite so fastidious about honoring bonus agreements with its employees.

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AIG

Investor Lawsuit: Cassano Hid AIG Losses

Zachary Roth | March 17, 2009, 4:44PM

More from the Joseph Cassano files, which are proving to be very interesting indeed.

According to an SEC filing made this month by AIG, a company shareholder in January filed a lawsuit charging Cassano with concealing his financial product unit's massive losses. Cassano stepped down as the head of the unit -- which made the credit default swaps that drove AIG into the ground -- last year.

Here's the full relevant portion of the filing:

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AIG

Under Cassano, Troubled AIG Unit Was Charged With Major Securities Law Violation

Zachary Roth | March 17, 2009, 4:21PM

We've been doing a little digging into Joseph Cassano, who until last year ran AIG's financial products unit, known as AIGFP. That's the unit, of course, whose staffers just got $165 million in bonuses despite undertaking those credit default swaps that helped bring the company down. And it was under Cassano that those deals were made.

As we noted earlier, the FBI and British authorities have lately been probing AIGFP. But it looks like under Cassano, the unit has been in criminal investigators' crosshairs before.

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AIG

Since Last Fall, US And UK Launched Fraud Probes Into AIG

Zachary Roth | March 17, 2009, 2:31PM

Here's a point that's worth remembering amid the furor over those AIG bonuses: law enforcement agencies on both sides of the Atlantic have begun investigations into the company in recent months -- and those probes appear to be ongoing.

Last September, when the financial crisis began in earnest, following the collapse of Lehman Brothers, several news outlets reported (via Nexis) that the FBI had launched an investigation into potential fraud at four of the firms at the center of the collapse: Lehman, Fannie Mae, Freddie Mac ... and AIG. Subsequent reports have suggested that the AIG piece is focused on the financial products unit (AIGFP), where the losses that led to the firm's collapse mostly occurred.

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AIG

Seventy-Three AIG-ers Got More Than $1 Million Each In Bonuses

Zachary Roth | March 17, 2009, 1:54PM

We're learning a bit more about the breakdown of those AIG bonuses -- thanks to New York Attorney General Andrew Cuomo.

In a letter sent to House Financial Services chair Barney Frank, Cuomo, who is probing the awards, wrote that seventy-three members of AIG's financial products unit were paid more than $1 million each.

And get this: Though the payments were called "retention" bonuses, 11 of those 73 millionaires, including one who got $4.6 million, are no longer even at AIG.

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AIG

Cassano: AIG Finance Staffers Are "Generally Well-Compensated," So They Don't Get Severance Pay

Zachary Roth | March 17, 2009, 12:31PM

So we know that it was AIG's financial products unit that engaged in those disastrous credit default swaps that helped bring the company to its knees last fall. And it's staff from that same unit that the firm just paid bonuses to last week, setting off a tidal wave of fury across the country.

That unit, based in London and Connecticut, was led until last year by Joseph Cassano, who negotiated a $1 million-a-month retainer when he left (AIG says it has since terminated that arrangement).

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Bernard Madoff

Madoff Worth Over $823 Million

Zachary Roth | March 13, 2009, 5:34PM

We knew Bernie Madoff was living large. But maybe not this large.

The Associated Press reports:

Newly filed court documents show Bernard Madoff and his wife had a net worth of more than $823 million at the end of last year.

The document detailing the Madoffs' assets was contained in papers his lawyers filed Friday in an effort to get him freed on bail.

The document shows the Madoffs owned four real estate properties worth $22 million and had $17 million in cash and a $7 million yacht, among other assets.

Bank of America

B of A: We Care About Privacy (When It Comes To Bonuses, That Is)

Zachary Roth | March 13, 2009, 11:47AM

The judge who will decide whether information about those Merrill Lynch bonuses should be made public has said he'll make a decision within the week, Bloomberg reports.

New York Attorney General Andrew Cuomo is investigating the bonus awards, which reportedly total $3-4 billion. Bank of America, which now owns Merrill Lynch, has refused to disclose to Cuomo which Merrill employees received the awards, and how much each got.

But we particularly liked this argument from B of A's lawyer, Evan Davis, made to Judge Bernard Fried:

Americans care about their privacy. That matters to us because if we don't try to protect it and succeed in protecting it we'll lose them to foreign banks.

Aah yes, Bank of America: famed protector of privacy. When the subject is executive bonuses, that may be true. When its customers' personal information, maybe not so much.

Bernard Madoff

Madoff's Confession Points Up SEC Failure

Zachary Roth | March 13, 2009, 11:26AM

It's fair to say that the incompetence and fecklessness of the SEC in failing to catch Bernie Madoff's $50 billion Ponzi scheme (merely "alleged" no more!) has already been pretty well established -- by this guy, among others.

But if anything, Madoff's courtroom confession delivered yesterday only makes the extent of the SEC's screwup even more startlingly clear.

Here's what Madoff said:

To conceal my fraud, I misrepresented to clients, employees and others, that I purchased securities for clients in overseas markets. Indeed, when the United States Securities and Exchange Commission asked me to testify as part of an investigation they were conducting about my investment advisory business, I knowingly gave false testimony under oath to the staff of the SEC on May 19, 2006 that I executed trades of common stock on behalf of my investment advisory clients and that I purchased and sold the equities that were part of my investment strategy in European markets. In that session with the SEC, which took place here in Manhattan, New York, I also knowingly gave false testimony under oath that I had executed options contracts on behalf of my investment advisory clients and that my firm had custody of the assets managed on behalf of my investment advisory clients.

And here's how the SEC -- in a memo that recommended closing that inquiry, having found only minor violations -- what appears to be that same piece of testimony:

[I]n the course of a preliminary inquiry into [Markopolos' allegations that Madoff's hedge fund profits were the result of fraud], the staff learned that during a recent examination of BLM by NERO's broker-dealer examination staff, Bernard Madoff, the sole owner of BLM, did not fully disclose to the examination staff either the nature of the trading conducted in the hedge fund accounts or the number of such accounts at BLM.

But of course, it wasn't that he didn't fully disclose the trading information. It's that he wasn't even making any trades, and had directed his staff to create false tickets to fool investors. Presumably, that deception could have been detected had the SEC simply bothered to try to match up those trade with the supposed counter-parties -- who didn't exist.

The SEC had another chance to catch that scheme when Madoff filed reports with the agency that year. Madoff said yesterday:

Another way that I concealed my fraud was through the filing of false and misleading certified audit reports and financial statements with the SEC. I knew that these audit reports and financial statements were false and that they would also be sent to clients. These reports, which were prepared here in the Southern District of New York, among things, falsely reflected my firm's liabilities as a result of my intentional failure to purchase securities on behalf of my advisory clients.

"Were there sufficient red flags for SEC to have caught this?" asked Ross Albert, a former SEC senior special counsel, asked in an interview with TPMmuckraker last December. "Absolutely, without a doubt."

Since then, that conclusion has become only more indisputable. And the case for those additional SEC funds has grown only stronger.

Bernard Madoff

Madoff's Statement

Zachary Roth | March 12, 2009, 4:14PM

Here's the full text of Bernad Madoff's statement made in court this morning, in which he admitted his crimes and described them in detail.

Madoff pleaded guilty to all 11 counts on which he was charged, in connection to a multi-billion dollar financial fraud.

Bailout

Congress Probing Merrill For Obstructing Bonus Investigation

Zachary Roth | March 12, 2009, 1:44PM

The House Oversight Committee has launched an investigation into whether Merrill Lynch misled it when the firm told the committee, in a letter sent last November, that no decisions had been made on bonuses.

As we noted earlier today, New York Attorney General Andrew Cuomo, who is probing the bonuses, included the letter, dated November 24, in court filings made yesterday. Cuomo also included testimony from a Merrill director, saying that the firm decided November 11th to award bonuses that December. Cuomo, who is trying to persuade a judge to compel Bank of America to disclose information on the bonuses, suggested that the testimony implies Merrill's letter was designed to mislead the committee, which was conducting its own invesitgation of the bonuses, and was chaired at the time by Rep. Henry Waxman (D-CA).

Congress rarely takes kindly to being misled, and this appears to be no exception. The committee's current chair, Rep. Ed Towns (D-NY), today issued a statement asserting that the Cuomo filings "raise the disturbing possibility that Merrill Lynch executives may have obstructed this Committee's investigation," and adding that Towns had directed committee lawyers to begin a "detailed investigation of this allegation."

Lying to a Congressional investigation, even in a letter, could potentially lead to perjury charges. There's an important difference between misleading and lying, however, and neither Cuomo nor Towns have accused Merrill of the latter.

Still, things are getting interesting...

The full statement from Towns follows after the jump ...

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Andrew Cuomo

Cuomo: Merrill Misled Congress On Bonuses

Zachary Roth | March 12, 2009, 11:18AM

It looks like Andrew Cuomo has escalated things in the Merrill Lynch bonus probe.

Cuomo is now accusing the firm of misleading Congress on the matter. In a court filing made yesterday, according to the Wall Street Journal, Cuomo included a November 24th letter, sent by Merrill to a House oversight committee, assuring lawmakers that no decisions on yearly bonuses had yet been made. Cuomo also filed testimony from a Merrill director, saying that on November 11th, the firm's compensation committee had decided that Merrill would pay bonuses in December, rather than January, when bonuses were usually paid (and when the firm would be under the control of Bank of America.)

Cuomo is trying to convince a judge to force Bank of America to disclose information about who got the bonuses -- which the company has so far been refusing to do.

The House Oversight committee, chaired at the time by Rep. Henry Waxman (D-CA), had asked Merrill for information on the bonuses, as part of an effort to ensure that the firm wasn't using bailout money for compensation.

There's another interesting nugget in the Journal's report:

Mr. Cuomo also disclosed that John Thain, Merrill's chairman and chief executive, was told that he would lose any chance of succeeding Kenneth Lewis as CEO of Bank of America if Mr. Thain kept pressing Merrill directors last fall for a 2008 bonus of as much as $40 million.

"He was told very strongly that you should not do that; that you would damage yourself with the Bank of America board if you do that, and if you ever wanted a chance to be in the running for my job, then that would eliminate it," Mr. Lewis said in his testimony last month, according to the filing.

Thain soon lost his chance to succeed Lewis anyway, as he was ousted in mid January amid anger over the bonuses and Merrill's massive fourth quarter losses.

Bernard Madoff

Madoff: "I Am Deeply Sorry And Ashamed"

Zachary Roth | March 12, 2009, 10:53AM

The moment that many of Bernard Madoff's victims have been waiting for has arrived: He has publicly described his crimes.

At the court proceeding this morning at which he pleaded guilty, Madoff declared: "I cannot adequately express how sorry I am for what I have done."

CNBC describes the scene:

As the proceeding began, Madoff asked if he could have some water.

Judge Denny Chin swore Madoff in and asked him for his plea. After Madoff said he was pleading guilty, Chin explained that he would ask a series of questions before deciding whether to accept the plea.

"Mr. Madoff, you can be seated; pour yourself some water," Chin told him.

Chin went on to ask Madoff, "Do you understand parole has been abolished?" Madoff said, "Yes." Chin is due to sentence Madoff at a later date.

In his plea, Madoff made these statements:

"Your honor for many years ... I operated a ponzi scheme."

"I am grateful for this opportunity to speak" and explain that "I am deeply sorry and ashamed."

"I cannot adequately express how sorry I am for what I have done."

Madoff went on to say, "The victims of my schemes included individuals, charities, pension funds and hedge funds."

Madoff made a distinction between his investment business which was the fraud and the other businesses which he said were legit. "The other businesses were legitimate, profitable ...in all respects and those businesses were run by my brother and my sons," said Madoff.

Bernard Madoff

Madoff Pleading Guilty This Morning, But Not Playing Ball On Conspiracy

Zachary Roth | March 12, 2009, 9:13AM

The Bernard Madoff probe could be expanding, as we told you yesterday. But it doesn't look like prosecutors are getting any help from the man himself.

Bloomberg reports that Madoff, who will plead guilty in a Manhattan federal courthouse today, has not agreed to a plea deal, because prosecutors were demanding he admit to a conspiracy, meaning admitting he worked with others.

Madoff, 70, will plead guilty to all 11 counts he faces, and could receive up to 150 years in jail.

Prosecutors have not at this point alleged a conspiracy, in which two or more people agree to commit an illegal act, nor have they charged anyone except Madoff. But according to Bloomberg's sources, they have said Madoff didn't act alone. And in court documents, they alleged he told employees to create false account documents and trade confirmations, and to create false financial statements to fool regulators.

The Daily Beast reported Tuesday evening that the investigation had widened to include co-conspirators, but it remain unclear exactly what that means, or what evidence prosecutors have compiled.

Bernard Madoff

Is Madoff Probe Expanding?

Zachary Roth | March 11, 2009, 2:22PM

Bernard Madoff is set this week to plead guilty to orchestrating a massive Ponzi scheme. But could we be in line for more guilty pleas before this is all over?

The Daily Beast reports:

[T]he [Madoff] investigation ... has broadened to include a number of suspected co-conspirators, according to federal officials involved in the case.

The Daily Beast story -- written by Lucinda Franks, whose byline identifies her as a Pulitzer-Prize winning journalist who was formerly on the staff of the New York Times -- also reports that, according to sources, "several members of Madoff's inner circle transferred assets to their wives, transactions thought to be laundered through an English bank."

There are said to be three groups of possible co-conspirators, who could potentially be charged either criminally by the Justice Department, or civilly by the SEC.

In the first group are employees of Madoff's firm who concocted false trades and sent out phony statements to thousands of unsuspecting clients.

The second group is comprised of principals in feeder funds such as Cohmad Securities Corp. and Fairfield Greenwich Group, which funneled investor dollars to Madoff and received large fees for steering this business. If they were aware of Madoff's fraud, they could face criminal charges; if they were not, they could be hit with civil charges for a lack of due diligence.

The third group is the target of an investigation that's still in its early stages into money laundering through British banks, in which US and British authorities are cooperating. This group consists of solicitors, accountants, and others in London who may have assisted Madoff in transferring funds from client accounts to a Madoff entity that lists Ruth Madoff, brother Peter Madoff, and sons Mark and Andrew Madoff among its board members.

It's not clear from any of this that any specific members of Madoff's family, or his inner circle, are in immediate legal jeopardy.

But the Wall Street Journal appears to be thinking along similar lines (sub req). It notes:

Prosecutors alleged Tuesday that Mr. Madoff hired numerous employees with "little or no prior pertinent training or experience in the securities industry" and caused them to "communicate with clients and generate false and fraudulent documents."

Its report doesn't go as far as the Daily Beast's. The Journal says it's still unclear whether prosecutors believe these people knew they were involved in a fraudulent scheme, and doesn't explicitly say that the investigation has broadened beyond Madoff himself.

But it's noticeable that the paper does take the time to lay out what's known about the possible involvement in the scheme of five of Madoff's relatives and associates -- including his wife Ruth, who has hired her own lawyer, and his brother Peter, who was the chief compliance officer for Madoff's firm.

With Madoff's guilty plea soon to be safely in the bag, are these reports an indication of where prosecutors are going next?

AIG

Warren: Is AIG Bailout Money Going To Pay Off "Speculators"?

Zachary Roth | March 11, 2009, 12:31PM

Looks like you can add Elizabeth Warren to the growing list of people who want the federal government to tell us more about that latest AIG bailout.

Warren, who chairs the panel that's monitoring bailout spending on behalf of Congress, went on MSNBC's Rachel Maddow Show last night, and all but demanded more disclosure from Treasury Secretary Tim Geithner.

Maddow raised the fact that AIG has reportedly passed bailout money onto its counterparties on those credit default swaps, and that it currently has four PR firms on its payroll. In response, Warren, appearing perhaps more frustrated than in any of her other numerous media appearances over the last few most, responded:

It doesn't seem strange to me, and the fact that it doesn't seem strange to me tells you something really awful about what it's been like to be in Washington for the last few months.

These financial institutions have figured out that they're bleeding red ink, and their best solution is to persuade the Treasury Department to give them lots of money. And when the Treasury Department starts to say, there may be some problems here, the American people don't want to go along with this, then lets see if we can spin the American people on it.

The Treasury Department has not asked for the critical information about where this money has gone, from AIG. We've poured the money into AIG, and it has somehow poured it out the other end. The Treasury Department has not asked, and has not revealed, what it is that's happening with that money.

And so as long as that's the case, maybe some of the money is going to other financial institutions. Maybe some of the money is going to pay off these credit default swaps that are essential for saving other institutions that have counted on it for credit and insurance. And maybe some of where this money is going is just off to speculators, who just played the game of speculation, and would now like to collect a hundred cents on the dollar form their speculations, and collect it indirectly from the American taxpayer.

You can see the video here. (The excerpt quoted above begins around the 9:00 mark.)

The Federal Reserve, which has been at the center of the latest AIG bailout, has declined to reveal much information about the maneuver, including the identity of AIG's counterparties, saying that doing so could affect confidence in the institutions at issue.

Reports by Warren's panel have grown increasingly critical of Treasury's level of transparency and accountability in regard to the bailout.

Financial Crisis

McGraw-Hill Tells Kids: "Good Intentions Caused The Financial Crisis"

Zachary Roth | March 10, 2009, 6:29PM

Looks like someone's been reading a few too many of those Republican talking points on the financial crisis.

You may not have been aware of this, but apparently "good intentions caused the financial crisis." That's the headline of a helpful educational primer for kids on the website of McGraw-Hill, a major provider of school textbooks.

In places, the writeup, which explains the historical background of the push for increased home-ownership, and offers a cogent explication of mortgage-backed securities, is quite helpful.

But it's hard to tell this story properly if, for political reasons, you have to steer clear of any explicit acknowledgment that the deregulation of the financial system -- out of a mix of misguided ideology and fealty to corporate interests -- was a major contributor to the collapse. Nor does the flat-out greed and borderline fraud of many major Wall Street banks enter into McGraw-Hill's telling of the story.

Still, maybe we're being too harsh. After all, everyone tried their hardest.

Bonus note: In case you forgot, we told you last month about how McGraw-Hill pulled out of a book deal with major financial blogger (and TPM friend) Barry Ritholtz, after learning that the book, Bailout Nation, would slam Standard & Poor's, the credit-ratings agency owned by McGraw.

AIG

AIG Counter-Party List Is Heavy On Foreign Banks

Zachary Roth | March 9, 2009, 11:11AM

Last week, we rounded up some reports from last fall that named some of the banks that AIG did business with on those credit-default swaps -- and therefore offered a first pass at where the fallen insurance behemoth's latest round of bailout money might ultimately be going.

But over the weekend, the Wall Street Journal offered some updated reporting (sub. req.) on that score. It obtained a confidential document listing banks that have been paid a total of roughly $50 billion by AIG, since it was first bailed out last fall.

Here's the Journal's list:

* Goldman Sachs
* Deutsche Bank
* Merrill Lynch
* Société Générale
* Calyon
* Barclays
* Rabobank
* Danske
* HSBC
* Royal Bank of Scotland
* Banco Santander
* Morgan Stanley
* Wachovia
* Bank of America
* Lloyds Banking Group

That includes $6 billion each for Goldman Sachs and Deutsche Bank.

As you can see, there's some overlap there with what we told you the Journal and the New York Times had previously reported.

But the new list shows how many of AIG's counter-parties were European -- a fact that's likely to add to frustration, among members of Congress and the public, that US taxpayer dollars are ultimately being used to save foreign banks from the consequences of their disastrous decisions to do credit default swaps with AIG. It's also likely to further fuel congressional demands that the federal government identify all of AIG's trading partners.

Financial Crisis

Beat The Press?

Zachary Roth | March 6, 2009, 5:22PM

Here's some interesting Friday afternoon reading ... The Deal's Robert Teitelbaum on the question of how much blame the financial press deserves for the current mess we're in.

We don't agree with everything Teitelbaum says -- he goes too easy on the press in places -- but the notion you often see thrown around, that business reporters necessarily failed because they didn't "predict" the collapse has always struck us as simplistic, so it's refreshing to see someone trying to think a bit more deeply.

Bank of America

B of A: Revealing Merrill Bonus Info Would Cause "Irreparable Harm"

Zachary Roth | March 6, 2009, 11:07AM

We didn't get to this yesterday afternoon... but it looks like Bank of America is going to the mat to avoid telling Andrew Cuomo's investigation who got those controversial Merill Lynch bonuses.

B of A, reports Bloomberg, filed court documents yesterday claiming that revealing the identities of the lucky bonus recipients would cause "grave and irreparable harm" to the firm, because it would let competitors know which areas of B of A's business the company considers most valuable, and would therefore make it easier to steal B of A's top talent. It would also create "internal dissension and consternation," and could even create security risks for those named.

In other words, if it became known who we gave huge bonuses to in a year when Merrill collapsed, people would be so mad they'd physically attack them.

Does any of this even pass the laugh test?

Former Merrill CEO John Thain has already talked to Cuomo's team about the bonuses, after a judge ordered him to do. But its not clear what he said. B of A CEO Ken Lewis refused last week to turn over a list of who got the bonuses.

Merrill gave out the awards on an accelerated schedule last December, just weeks before the failed firm came under the control of B of A. Thain has since been fired.

AIG

Who Are The AIG Counterparties? Here Are Some...

Zachary Roth | March 5, 2009, 4:58PM

Over at TPM, Josh has been doggedly highlighting the refusal of both AIG and the federal government to reveal the identity of AIG's counter-parties in its disastrous credit default swaps. And several lawmakers have in recent days pressed Tim Geithner and Ben Bernanke on the issue.

The question matters, of course, because AIG needed to make its most recent multi-billion dollar trip back to the public trough (that's over $160 billion in all for AIG, if you're counting) in order to pay back its creditors on those disastrous swaps -- and thereby, we're told, prevent a wider financial collapse. So identifying who those swaps were made with will tell us, in effect, who this latest portion of our money is ultimately going to.

It's worth noting, then, that, thanks to some great reporting from the Wall Street Journal and the New York Times, we do in fact have some preliminary information about who AIG's partners were on the swaps.

This Journal story from October 2008 names the following nine American and foreign banks as having bought swaps from AIG: Goldman Sachs; Merrill Lynch; UBS of Switzerland; Credit Agricole SA of France; Deutsche Bank of Germany; Barclays, and Royal Bank of Scotland Group, of Britain; and CIBC, and Bank of Montreal, of Canada.

Merrill is described by the Journal as a "big client" of the AIG unit that did the swaps.

By the end of 2007, with the value of the underlying assets plummeting, many of these banks had asked for collateral on the swaps, according to the Journal.

For instance, the paper reports that Goldman held swaps that insured about $20 billion of securities. In August 2007, Goldman demanded $1.5 billion in collateral from AIG. It ultimately got $450 million, then another $1.5 billion last October. At that point, says the Journal:

Goldman hedged its exposure by making a bearish bet on AIG, buying credit-default swaps on AIG's own debt.

That picture of Goldman's exposure jibes with a New York Times story from September 2008 about the credit default swaps, which reported that Goldman was AIG's "largest trading partner," and likewise gave a figure of $20 billion for Goldman's exposure to AIG.

The Times also implicates another domestic firm: JP Morgan (now JP Morgan Chase). In fact, it recounts that it was derivatives traders from that company that a decade ago, first brought to AIG's London-based financial products unit, run by Joseph Cassano, the ill-fated idea of doing credit default swaps.

It reports:

Ten years ago, a "watershed" moment changed the profile of the derivatives that Mr. Cassano traded, according to a transcript of comments he made at an industry event last year. Derivatives specialists from J. P. Morgan, a leading bank that had many dealings with Mr. Cassano's unit, came calling with a novel idea.

Morgan proposed the following: A.I.G. should try writing insurance on packages of debt known as "collateralized debt obligations." C.D.O.'s. were pools of loans sliced into tranches and sold to investors based on the credit quality of the underlying securities.

It's not 100 percent clear, then, that JP Morgan Chase is a current counter-party of AIG on the swaps -- but it certainly wouldn't be surprising.

That same Times story offers another hint, albeit a vague one, about the identity of the counter-parties.

While clients and counterparties remain closely guarded secrets in the derivatives trade, Mr. Cassano talked publicly about how proud he was of his customer list.

At the 2007 conference he noted that his company worked with a "global swath" of top-notch entities that included "banks and investment banks, pension funds, endowments, foundations, insurance companies, hedge funds, money managers, high-net-worth individuals, municipalities and sovereigns and supranationals."

What to make of all this? Well, here's one thing. As Josh has noted, the usual argument given against disclosing the identities of the counter-parties is that it would reduce public confidence in the banks that were named, with potentially disastrous consequences for their positions. But there's little evidence we're aware of that any of the banks named above suffered such an effect when, for instance, the Journal and the Times published their stories -- whose accuracy have not been questioned.

In fact, Geithner and Bernanke haven't deigned to explain their position in even this much detail -- so it's difficult to know whether there are factors we're not considering. But in the absence of a fuller explanation, we'll keep pressing...

Andrew Cuomo

Cuomo Subpoenas More Of Merrill's Top Earners

Zachary Roth | March 5, 2009, 1:45PM

Yesterday, we noted a report in the Wall Street Journal that Merrill Lynch's top ten execs were each paid more than $10 million last year. The ten made slightly more than the top ten earners for 2007, despite the company's collapse last year.

Now, the Journal follows up by reporting that several of those execs have been subpoenaed in New York Attorney General Andrew Cuomo's investigation into Merrill's awarding of billions in bonuses.

Among the group are Andrea Orcel, who was Merrill's top investment banker, Thomas Montag, who led global sales and trading, and Peter Kraus, who ran strategy. They all now work at Bank of America, which took over Merrill after its collapse.

Another of the top ten, former Merrill CEO John Thain, has already spoken to Cuomo's investigators.

Bank of America, whose role in the bonus fiasco is also being scrutinized by Cuomo, filed a court petition yesterday to try to keep the pay information secret. B of A CEO Ken Lewis reportedly refused to answer investigators' questions on the subject when he met with them last week.

Bank of America

Merrill's Top Ten Earners Made More Last Year Than In 07

Zachary Roth | March 4, 2009, 1:23PM

"While Merrill staggered, 11 top executives were paid more than $10 million in cash and stock last year, say people familiar with the situation," reports the Wall Street Journal.

Amazingly, the top ten earners at the company in 2008, according to the paper, made slightly more than the top ten in 2007: $209 million, up from $201 million.

Remember, as you think about that, what happened to Merrill last year. It collapsed -- so wrecked by its investment in toxic mortgage assets that it had to be taken over by Bank of America. Then, even after that deal had been announced, it absorbed such massive fourth quarter losses that B of A needed $20 billion from the Treasury to digest Merrill.

None of that, of course, stopped Merrill, under then-CEO John Thain, from dishing out billions in bonuses late last year -- a decision currently being probed by New York Attorney General Andrew Cuomo.

On that front, the WSJ reports that B of A plans to file a court motion today to try to keep the compensation data from becoming public. But Cuomo will counter with his own motion arguing it should be released.

The paper also has some good thumbnails of these high-rollers:

Thomas Montag: Started as head of global sales and trading at Merrill in August and now heads global markets at Bank of America. He was handed a $39.4 million pay package and Merrill stock awards valued at approximately $50 million. The stock awards were issued to replace stock he held in Goldman Sachs Group Inc., his previous employer.

Andrea Orcel: A top Merrill banker who now heads international corporate and investment banking for Bank of America. He got $33.8 million in 2008, down from approximately $36 million in 2007. His 2007 package included a special $12 million bonus for advising Royal Bank of Scotland Group PLC and other acquirers of ABN Amro Holdings NV, a now-troubled deal.

Peter Kraus: Hired as head of strategy at Merrill in September and was given a $29.4 million contract and Merrill stock to replace his holdings in Goldman, where he used to work. He is now the chief executive officer of investment management firm AllianceBernstein. (Ed note: We wrote about Kraus's $37 million Park Avenue apartment here.)

David Gu: Head of rates at Merrill; now heads global rates and currencies at Bank of America. He made $18.7 million in 2008, down from $19.8 million in 2007.

David Goodman: Co-head of global commodities at Merrill and Bank of America. Got a two-year employment guarantee from Merrill in 2007, paying him $16.5 million in 2007 and another $16.5 million in 2008.

Bank of America

NYT On The Theresa Hatt Phenomenon

Zachary Roth | March 4, 2009, 11:37AM

It looks like the New York Times liked our Theresa Hatt story.

That was the one about how a Bank of America estates rep tried to guilt-trip the son of a deceased card-holder into paying his mother's credit-card balance, though he was under no obligation to do so. We also spoke to a former B of A collections rep, who told us such techniques were encouraged.

And today the Times reports on a debt-collection firm that contracts with credit-card companies to go after the relatives of people who died with outstanding debts.

The paper makes clear that in most cases -- like the one we highlighted -- the relatives have no legal obligation to pay up. Not that that's made clear, of course:

Scott Weltman of Weltman, Weinberg & Reis, a Cleveland law firm that performs deceased collections, says that if family members ask, "we definitely tell them" they have no legal obligation to pay. "But is it disclosed upfront -- 'Mr. Smith, you definitely don't owe the money'? It's not that blunt."

Collection agents at the firm, DCM, use some sophisticated techniques.

New hires at DCM train for three weeks in what the company calls "empathic active listening," which mixes the comforting air of a funeral director with the nonjudgmental tones of a friend. The new employees learn to use such anger-deflecting phrases as "If I hear you correctly, you'd like..."

"You get to be the person who cares," the training manager, Autumn Boomgaarden, told a class of four new hires.

Often, they succeed:

Brenda Edwards, one of DCM's top collectors, spoke with a woman in New Jersey about her mother's $544.96 credit card bill.

"She had no will, no finances, nothing," the daughter said. "Nothing went to probate." The $200 in the checking account was used for funeral expenses. But the woman also said the family "filed a form with the county," indicating that perhaps there was a legal estate after all.

"Is anyone in the family in a position to pay this?" Ms. Edwards asked, adding: "I'm not telling you it needs to be paid at all."

The woman reached a decision. "I will talk to my brothers and sisters and we will pay this," she said.

DCM's chief executive makes clear that right now, collecting even on small debts is crucial for credit card behemoths. "The financial services industry is under a tremendous amount of pressure, and every dollar we collect improves their profitability," he tells the Times.

But given the parlous state of the industry, those collectors had better be working overtime.

PERMALINK | COMMENTS | RECOMMEND RECOMMEND (7)
Topics: Bank of America, Financial Crisis, Wall Street

John Sununu

Sununu: New Board Membership Doesn't Conflict With TARP Oversight Work

Zachary Roth | March 3, 2009, 10:51AM

John Sununu has denied the charge that he has a conflict of interest in regard to his work on the Congressional Oversight Panel for the TARP funds.

Over the weekend, we reported that the former New Hampshire GOP senator has joined the board of a firm that's an affiliate of Bank of New York Mellon -- which, in addition to receiving bailout funds itself, has contracted with the Treasury Department to help administer the program.

Yesterday, the Associated Press picked up the story, and got a response out of Sununu.

"ConvergEx Group is an independent company," Sununu said in an e-mail Monday. "It is not eligible to apply for or receive funds through any programs established under TARP." He pointed out that the bank "holds a minority position only" with ConvergEx.

That's a 33.8 percent stake to be exact, the AP reports. Not enough for Bank of New York to control ConvergeEx, but perhaps enough so that ConvergeEx's interests are at least somewhat affected by the TARP program.

Separately, a spokeswoman for the COP told TPMmuckraker that the panel has not yet formally addressed the issue, since it not met since Sununu's appointment to ConvergeEx's board was announced last week. We'll keep you posted if and when it does.

Bank of America

B of A's Lewis: Actually, Taking Public Money Was A Mistake

Zachary Roth | March 2, 2009, 4:34PM

Ken Lewis, the embattled Bank of America CEO, has told the Financial Times that taking $20 billion of government money to help it digest Merrill Lynch's losses was a "tactical mistake."

Lewis told the paper that the move made B of A appear as weak as Citigroup.

He also said that he intended to stay on atop B of A until the firm had paid the government back the $45 billion in total it has received from taxpayers, saying that could happen in 2-3 years.

Lewis has seen calls for his resignation over the mishandled Merrill merger. Merrill's massive losses in the fourth quarter of 2008 forced B of A to go to the federal government for help. Merrill's billion-dollar bonus awards, which are currently being probed by New York Attorney General Andrew Cuomo, have not helped the situation. Lewis recently stayed mum when questioned by Cuomo's investigators about what he knew about the bonuses.