Judgment from the United States Court of Federal Claims on the AIG lawsuit:
Section 13(3) did not authorize the Federal Reserve Bank to acquire a borrower’s equity as consideration for the loan…Moreover, there is nothing in the Federal Reserve Act or in any other federal statute that would permit a Federal Reserve Bank to take over a private corporation and run its business as if the Government were the owner. Yet, that is precisely what FRBNY did.
It is one thing for FRBNY to have made an $85 billion loan to AIG at exorbitant interest rates under Section 13(3), but it is quite another to direct the replacement of AIG’s Chief Executive Officer, and to take control of AIG’s business operations. A Federal Reserve Bank has no right to control and run a company to whom it has made a sizable loan.
Here are the FT Alphaville posts from September 15, 2008.
Have a click through. Busy times!
If you want to explore other days at the height of the crisis, note the format of the URL in bold here: http://ftalphaville.ft.com/2008/09/15/ Just change the date in the address bar on your browser as required. Read more
The US said he was busy “managing the nation’s economy”.
Well, tough. Read more
Fresh from its latest heart-warming ad campaign AIG is probably considering how to put together its next one, which our non-existent sources suggest will showcase Robert Benmosche, its chief executive, both having a cake and eating it too.
The board of A.I.G. will meet on Wednesday to consider joining a $25 billion shareholder lawsuit against the government, court records show.
Click the image above for the NY Fed’s announcement… Read more
“The question is,” said Alice, “whether you can make words mean so many different things.”
In a recent Alphaville post, I made the claim that if the monolines had been required to mark the credit risk that they had taken to market, they would not have played such a prominent role in the financial crisis. Here I want to provide some support for that claim. Read more
As part of the Dodd-Frank Act, various types of participants in derivatives markets need to be defined. According to the jersey one ultimately gets as a trader of interest rate swaps, credit default swaps and so on, different regulations may apply.
(Where “security-based”, regulator equals SEC, otherwise CFTC.) Read more
Dear American International Group, can’t you do anything in a small way? The gigantic numbers make our heads bleed and ruin any sense of scale we once had.
A $182bn bailout, $467bn net notional of super senior credit default swaps written, and now, in AIG’s fourth quarter results, $17.7bn of $19.8bn of fourth quarter net income is down to… a “release of valuation reserves”? Read more
Credit Suisse on Thursday won the bidding for a $7bn portfolio of mortgage-related securities that used to belong to AIG and was sold by the Federal Reserve Bank of New York, the FT reports. The sale marks a step forward in the NY Fed’s efforts to sell the $20bn portfolio, called Maiden Lane II, after suspending previous auctions a year ago. The NY Fed decided to sell the securities after receiving an unsolicited offer from Goldman Sachs this month. Through BlackRock Solutions, its investment manager for Maiden Lane II, the NY Fed then took bids from four banks because it had said it would sell the securities through a competitive process.
The Federal Reserve Bank of New York is making a fresh attempt to sell several billion dollars of mortgage-related securities it acquired in the controversial 2008 rescue of AIG, the insurance group, the FT says, citing people familiar with the matter. The New York Fed had reportedly received an approach for about $7bn of the $20.5bn of residential mortgage-backed securities housed in Maiden Lane II, a special purpose vehicle set up by to acquire then-toxic assets from AIG. The insurance company declined to comment on whether it was planning to make a fresh bid for the assets, although one person familiar with the situation suggested it was not. Bank of America’s Merrill Lynch unit has been the biggest acquirer of securities during the auctions, according to New York Fed records, followed by Citigroup, Royal Bank of Scotland, Credit Suisse and Goldman Sachs.
MF Global lost ‘effective control’ of its sovereign bond assets. This gifted the broker some rather favourable accounting treatment. The broker’s clients, meanwhile, wanted to keep effective control of their own assets, and not just in the accounting sense, but in a very real sense.
As creditors and clients pick over the corpse of MF Global, reaching into its pockets for anything that can compensate them, we’re learning a lot about accounting for repos, and about what does and doesn’t work when it comes to protecting client assets. Read more
AIG’s former chief executive sued the US government for $25bn on Monday, alleging that the Treasury illegally appropriated the insurer from shareholders in 2008 and used it “to covertly funnel billions of dollars to foreign entities”, the FT reported. Maurice “Hank” Greenberg, who left as chief executive in 2005 but remained a large shareholder, said the government acted unconstitutionally when it took 80 per cent of AIG’s equity in return for a rescue. The suit against the US and the Federal Reserve Bank of New York has been filed on behalf of Starr International and other AIG shareholders. According to the Wall Street Journal, Starr is seeking damages for itself and other shareholders of at least $25bn. AIG is listed as a nominal defendant in the suits, which also seek damages for the company. A spokesman for the company declined to comment. In a complaint filed at the US Court of Federal Claims, Starr International, a company controlled by Mr Greenberg, said: “The government is not empowered to trample shareholder and property rights even in the midst of a financial emergency.
The City watchdog will fine Coutts & Co, the private bank that counts the Queen among its clients, about £6m for the way it sold savings products linked to failed US insurer AIG, the FT says. The fine, expected to be announced as soon as Tuesday, is one of the stiffest penalties ever handed down by the FSA. It comes after years of complaints from investors, including Sir Keith Mills, founder of the Nectar loyalty card scheme, who say they were not properly told of the risks involved in AIG Life Premier Bonds. The fine will be a particular blow to Coutts as the private bank, owned by Royal Bank of Scotland, has been focusing on building up its investment management business. The fine is understood to relate to bonds sold between 2003 and 2008. Investors saw their money frozen after AIG was bailed out by US taxpayers during the financial crisis, and some claimed they had been mis-sold the products. Sir Keith is also taking legal action over the matter.
American International Group, the bailed-out US insurer that nearly failed during the 2008 crisis, posted its worst quarterly loss in nearly two years as swooning markets battered the company’s holdings, reports the FT. After markets closed, the company reported a $4.1bn third-quarter loss, worse than analysts’ expectations and a 63 per cent decline from last year’s $2.5bn loss. It was the company’s worst loss since the fourth quarter of 2009, when it recorded an $8.9bn hit. AIG shares fell more than 2 per cent to $24 in after-hours trading. The insurer blamed the larger economy for its ills, pointing to declining equity markets as the reason for its $2.3bn loss on its holdings of AIA, the Asian insurer it partly spun off last year. The deteriorating US housing market also played a role, contributing to a $974m writedown on its mortgage-related holdings at the Federal Reserve Bank of New York.
Alright, you lot, stop it with the ridiculous CDS posts. Stop it! We mean it. And Isda means it too:
It’s hard to overstate the amount of nonsensical chatter on credit default swaps (CDS) in the past few days.
American International Group is planning to sell about half its stake in pan-Asian life insurer AIA Group, the WSJ says, citing people familiar with the matter. A one year lockup period ends this week allowing AIG to sell about $6bn worth of AIA shares. AIG sold two-thirds of its stake in AIA’s IPO in October, and now plans to sell down its stake in the coming weeks, depending on market conditions, the report says.
US Bancorp has sued Bank of America over a $1.75bn mortgage pool to which the Midwestern lender served as trustee, citing a “startling rate” of defaults in loans underwritten by Countrywide, the FT reports. The suit carries the now-familiar demand that BofA buy back the loans. Adding to BofA’s legal predicament, the bank’s lawyers knew that AIG was prepared to sue it for more than $10bn seven months before the suit went public, Reuters says. Legal analysts were divided on whether BofA’s litigation disclosure was sufficient, but the case illustrates investors’s fears that the legal risks facing BofA remain largely unknown. However, a judge has dismissed claims brought by Deutsche Bank and BNP Paribas against BofA for losses on asset-backed notes, Bloomberg reports.
Bank of America shares dropped as much as 17.8 per cent in early Wall Street trading on Monday, making it the worst performer in the Standard & Poor’s 500, as the bank faced a $10.5bn lawsuit from AIG over the sale of residential mortgage-backed securities allegedly “marred by fraud, misrepresentations and omissions”, reports the FT. The lawsuit filed in the New York Supreme Court on Monday, alleges that BofA and its subsidiaries wrote “defective” mortgages to borrowers who were not in a position to repay, packaged them into supposedly low-risk securities, and sold $28bn-worth to AIG using offering documents that misrepresented the quality of the loans.
Everyone’s favourite bank was again the S&P 500’s worst performer at pixel time:
American International Group, the insurer that almost failed in the 2008 crisis, could now withstand a severe downturn, its chief executive said after a market sell-off that presents a variety of challenges for the company, the FT reports. In second-quarter results published on Thursday, AIG reported net profits of $1.8bn compared with a net loss of $2.7bn in the same period last year. “Our crisis is over. It’s done,” said Robert Benmosche, chief executive. Mr Benmosche said the company – which is 74 per cent-owned by the US Treasury – was transformed following the 2008 crisis and had a much better liquidity profile after shedding most of the notorious financial products division, which brought the company to the brink of collapse by bad bets insuring toxic securities. “If the S&P went to 923 [from 1,200] and at the same time we get a hurricane or natural disaster that far exceeds Katrina, we’ll be on the edge,” he said. “We’ll make it but we’ll be on the edge. We want to be sure not to make a boo boo.
American International Group, the insurer that almost failed in the 2008 crisis, could now withstand a severe downturn, its chief executive said after a market sell-off that presents a variety of challenges for the company. The FT reports second-quarter results published on Thursday, AIG reported net profits of $1.8bn compared with a net loss of $2.7bn in the same period last year. “Our crisis is over. It’s done,” said Robert Benmosche, chief executive. Mr Benmosche said the company – which is 74 per cent-owned by the US Treasury – was transformed following the 2008 crisis and had a much better liquidity profile after shedding most of the notorious financial products division, which brought the company to the brink of collapse by bad bets insuring toxic securities.
International Lease Finance Corp, the aircraft-leasing arm of American International Group, is acquiring an airplane-parts management company, the WSJ says. ILFC on Tuesday reached a deal to acquire Miami-based AeroTurbine from Dutch jet-leasing firm AerCap Holdings. ILFC will pay $228m cash for the business, according to people familiar with the matter. The deal will help ILFC address its ageing aircraft portfolio.
The Wall Street Journal reports that the Federal Reserve Bank of New York is once again facing scrutiny over stockholdings held by a senior official during the 2008 financial crisis. Then-New York Fed President Timothy Geithner is said to have issued a waiver that allowed William Dudley—executive vice president of the regional Fed bank’s markets group—to work on the controversial bailout of American International Group (AIG) even though he held shares in the company. The New York Fed, one of the most critical entities when it comes to buying and selling government securities, played an important role in shaping Washington’s response to the crisis, according to congressional audit report released Thursday. The paper says the waiver allowed Dudley, a former Goldman economist who became New York Fed president in January 2009, to also work on issues involving General Electric, another company that received US assistance, even though he also held shares in that company.
The Wall Street Journal reports that American International Group (AIG) is looking to sell part of its giant airplane-leasing business through an initial public offering, according to people familiar with the matter. It is believed the sale of International Lease Finance Corp (ILFC) could raise between $1.5-2bn if market conditions are favorable, helping the company chip away at its government debt. The sale would represent roughly 25 per cent of Los Angeles-based ILFC and rank as one of the largest IPOs in the US so far this year, says the WSJ. AIG, which sold of its own stock in May, has been assessing strategic options for ILFC. The business is not seen as core to its business of selling insurance and had a book value of $8.2bn, representing its assets less liabilities, at the end of March. “Management has suggested a willingness to part with ILFC at the right price,” analysts from Bank of America Merrill Lynch noted in a research report last month. The insurer has considered selling all or part of the business, the WSJ cited people familiar with the matter.
The New York Fed may be wishing it cashed in its Maiden Lane II chips back in March.
On Friday it released the first batch of quarterly data on counterparties to its partial sale of Mortgage-Backed Securities acquired as part of the AIG bailout. Read more
AIG is back on Wall Street.
Fresh from failing to acquire its own portfolio of dodgy deals from the Federal Reserve — AIG’s Mortgage-Backed Securities (MBS) were acquired by the US central bank during the crisis and transformed into Maiden Lane II — the bailed-out insurer has a new strategy to lure investors to its stock after last month’s ‘re-IPO.’ Read more
The US Treasury took the first step in its exit from American International Group, and made a small profit, by selling $5.8bn worth of the shares it inherited in bailing out the insurance group during the financial crisis, the FT reports. The shares were priced at $29, with the Treasury selling 200m shares. AIG itself sold 100m shares, raising $2.9bn for the group as it moves towards independence and attempts to rebuild its core businesses. The price of AIG shares has fallen sharply this year, but the Treasury was still able to generate a modest profit on its $47.5bn cash injection by selling just above its break-even point of $28.73 a share. That does not account for other elements of the $180bn bail-out.
American International Group and its largest investor, the US Treasury, are poised to raise at least $8.7bn through a sale of stock on Tuesday, handing the federal government a small profit on the deal, people familiar with the matter said. The FT reports that AIG and the Treasury plan to issue the shares at $29-$29.30 each on Tuesday. The offering attracted enough demand to meet Treasury’s goal of selling 300m shares. As of late Monday, officials had ruled against selling more, they said. The price range would ensure that the Treasury will make money on its first attempt to shed some of the AIG holdings it inherited during the financial crisis. The government, whose $180bn bail-out left it with a 92 per cent stake, needs to sell each share for at least $28.73 to break even on the bail-out. “If the government wants to do the next tranche quickly, they need to place and price it right,” said Scott Sweet, senior managing partner of IPO Boutique, an investor advisory firm.
The Treasury could yet abandon the imminent $9.2bn sale of stock in AIG if it cannot make a profit on the offering, people familiar with the matter told Reuters. AIG said on Wednesday that it would sell 100m shares and that the Treasury would sell 200m shares, raising some $9.2bn – an amount much lower than the $20bn originally targeted, reports the FT. While AIG shares rallied on the announcement, the offering of shares by AIG itself has increased fears that the sale will become dilutive.