AIG - FCIC - Snippets

  • 2008 0912 - FRB - AIG Meeting Notes - FCIC-AIG0021217 - 2p
    • AIG is facing serious liquidity issues that threaten its survival viability.
    • Rating triggers:
      GICs are issued out of AlG-Financial Products (AlG-FP), insured by the holding company.

      • downgrade by 1 rating agency leads to $1OB in collateral calls, plus an additional $4B-$5B in portfolio obligations that are puttable if  downgraded (total of $15B in liquidity needs)
      • downgrade by 2 rating agencies - additional $3B in liquidity needs If downgraded, they must post half of the additional collateral within 2 days, and the other half in 10 days.
    • Securities lending (mostly out of the insurance companies) - about $69B in liabilities, and the holding company has only enough cash to fund ½ of that, if the sec lending counterparties turn away from the AIG name.
    • Mobility of liquidity - most cash within the organization is 'trapped' in regulated entities <Bonk: Insurance Companies> and is not freely transferable to AIG holding company or AIG Financial Products (the derivatives and trading sub) for its liquidity needs. Today, the holding company started with $9B in liquidity, used $1 .4 for CP, but was able to upstream about $1.4B in 'dividends' from subs up to holding company, but little ability, in general, to use subs to upstream liquidity to holding co or its non-regulated subs.
  • 2008 0916 - FCIC - Summary of AIG Bankruptcy Impact - FCIC-SSI0007460 - 1p
    • Tim,
      Attached is a document that summarizes some of our discussion earlier.
    • The key takeaway is that AIG could be more systemic in nature than Lehman due to the retail dimension of its business.
    • Insolvency should be managed in a way that insulates the retail activity from contagion arising from the wholesale part.
    • Stating the obvious, intervention needs to insulate retail acitivities (inc. those in the parent, like stable value wraps) in a way that inspires confidence among the public to avoid a potential crisis of confidence.
    • Coordination issues among state regulators could make this difficult.
    • The counterparty exposure figures you asked for will be sent by Supervision under a seperate cover.

      Regards, Alex

  • 2008 0916 - FCIC - Systemic Impact of AIG Bankruptcy attachment to FRBNY -  internal email from Alejandro LaTorre to Geithner - FCIC-SSI0007443 - 3p
    • Filing at holding co. level may, however, cause liquidity stresses at the insurance subsidiary level because of exposures to affiliates, and! or runs because of name aversion (risk of run mainly at the life insurance subsidiaries).
    • I Key Differences between Impact of AIG and Lehman Failure
    • II. How the Bankruptcy Process Might Unfold
    • III. Impact on Financial Counterparties (see details from Bank Supervision)
    • IV. Impact on Market Liquidity and Related Spillover Effects