AIG - Securities Lending - Timeline

  • Secured Borrowing Facility
  • 2007 1010 - AIG - Finance Committee - 2p
    • Mr. Adamczyk reviewed the securities lending program, nothing <Typo-noting> that he program has generated $750 million in pre-tax income in the Past 10 years, $200 million 2006.
    • He reported that liquid assets of approximately $20 billion now exceed open loans.
  • 2007 1023 - AIG - Credit Risk Committee (CRC) - 6p
    • `3. Report of the October 2, 2007 CRC Portfolio Review of AIG Global Securities Lending - p4
  • 2007 1129 - AIG - PWC Notes re Meeting to Discuss Super Senior Valuations and Collateral Disputes - 3p
    • Secondly the issues in AIG Investment around the securities lending and the fact that if the exposure had been known prior to the q2 10Q being issued it is highly likely that the disclosures would have been changed.
  • 2007 1213 - AIG - Finance Committee (JX-005-updated) - 9p
    • (p5) - Mr. Scott reported "business as usual" for the securities lending program, with $16 billion of cash collateral currently held for the $88 billion portfolio.
    • He explained that a number of contingency plans have been implemented including a $3.5 billion contingency funding plan executable on short notice for the domestic pool as well as plans for internal trades in the overseas pools to add liquidity.
  • 2008 0211 - AIG - Audit Committee - 9p
    • (p6) - Mr. Sullivan commented on crisis management. indicating that he is hopeful that AlG's current ratings can be maintained as any downgrade of more than one notch would trigger coIlateral calls and potentially negatively affect the securities lending program.
  • 2008 0814 - FCIC - FRB (Kevin Coffey) re: Meeting with OTS (SL) - FCIC-AIG0021211 - 2p
    • (p2) - From a securities lending standpoint, things are currently better and they indicated that cash and short-term investments had risen to about $20 billion recently.
      • They also indicated that tenors on these deals ranged from overnight out to six months but were not sure whether there had been any change/shortening in the maturity profile of the book, although they had the numbers (and may discuss further).
      • Finally, they viewed the securities being lent as scarce, in demand by borrowers and therefore less likely to have funding rollover issues.
    • (p2) - (Note: CSG's <Credit Suisse Group> CPC team indicated today that in its relationship with AIG, CSG does not need the securities it borrows but instead AIG is using the deals to raise cash.
    • As such, CSG is looking to take a haircut on AIG's securities as opposed to posting cash to AIG in excess of the securities value which is the market standard).
    • In order to expand liquidity capacity, the firm's insurance companies were setting up repo lines which they had never done before (it was unclear if this had already been implemented or if it is on the to do list).
    • They are also setting up another $2 billion inter-company LOC. 
  • 2008 0814 - FCIC - FRB - Summary of Drivers of Potential Earnings, Capital and Liquidity Issues - 2p
    • (p2) - Through its securities lending agreements, AIG has borrowed $75 billion.
    • These funds have generally been invested in longer term credit assets - RMBS/ABS/ CDOs ($36b), corporate bonds (13b), cash (10b) - that have lost approximately $16 billion2. 
    • Because the maturities of the securities lending contracts range from 1 day (approximately $7 bill on) out to 6 months, the firm is subject to significant rollover risk on these liabilities to the extent redemptions exceed available cash and proceeds from asset sales.
    • In addition, the assets (and the firm's insurance entities) can be further impacted as/if conditions continue to deteriorate.
  • 2008 1006 - NAIC to GOV Letter - Praeger, Waxman, Davis - [link to NAIC Page - 4p]
    • AIG’s U.S. Insurance Companies are Solvent -
    • The problems at AIG necessitating a Federal loan are not with its insurance subsidiaries.
    • The problems stem from the operations of AIG’s holding company, its financial products division, and its securities lending division, regulated at the Federal level by the Office of Thrift Supervision (OTS).
    • The State regulated insurance subsidiaries remain solvent and able to pay claims.
    • Throughout the liquidity crisis at the AIG holding company level, consumers remained protected by State rules preventing the holding company from simply raiding capital from its profitable and well-capitalized insurance subsidiaries. 
  • AIG Securities Lending Corp. (after registering as broker- dealer in 2006).
    • YEAR? - AIG: The Missing Piece of Its Failure Narrative & Why It Matters, Hester Peirce, Senior Research Fellow - 70p
  • AIG’s insurance companies were also directly exposed to systemic risk through securities lending partnerships with other financial institutions.

2009 0616 - Letter - Michael T. McRaith, Director of Insurance (Illinois) - Testimony of the National Association of Insurance Commissioners Before the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises Committee on Financial Services United States House of Representatives Regarding: “Systemic Risk and Insurance” - 16p

  • AIG Securities Lending Corp.
  • AIG Global Securities Lending (AIGGSL / GSL)
  • AIG Investments
  • Maiden Lane II (MLII)
  •  Securities Lending Cash Collateral Investment Policy
  • 2011 05- Missouri - RE: Examination Report of AGC Life Insurance Company (As of: DECEMBER 31, 2009 ) - 25p

The current full scope financial examination covers the period from January l, 2007, through December 31, 2009, and was conducted by examiners from the state of Missouri representing the Midwestern Zone of the NAIC with no other zones participating. This examination also included material transactions or events occurring subsequent to December 3 l, 2009.

SUMMARY OF SIGNIFICANT FINDINGS

AGC Life Insurance Company operates as a holding company that directly owns six domestic life insurance subsidiaries and one foreign subsidiary.

  • The domestic subsidiaries Jost $17.5 billion in 2008 as a result of their participation in a securities lending program sponsored by its upstream parent, American International Group, lnc. (''AIG").
  • AIG made capital contributions in 2008 to substantially offset these securities lending losses from funds primarily obtained from the U.S. government.
  • However the subsidiaries incurred significant damage to their reputations because of their association with AIG and this reputational damage resulted in a substantial loss of business that may be considered a threat to their future level of profitability.
  • As a result the subsidiaries could be dependent on additional capital contributions from AlG to maintain their capital positions.
  • Securities Borrowing Facility
  • Win Neuger
    • Transatlantic v AIG, 2002 SECURITIES LENDING AGENCY AGREEMENT
    • American Home Assurance Company, National Union Fire Insurance Company of Pittsburgh, Pennsylvania - Vice President
  • Richard Scott
  • Michael Rieger - AIG Global Investment Group, Managing Director at AIG Global Investments, AIG Global Investment Group (AIGGIG), Fatal Risk: A Cautionary Tale of AIG's Corporate Suicide
  • Peter Adamcyzk
  • Craig Mitchell
  • Rich (Richard) Mercante
    • Transatlantic v AIG, 2002 SECURITIES LENDING AGENCY AGREEMENT
    • American International Life Ass-urance Company of New York, Delaware American Life insurance Company, AIG Life insurance Company - Vice President of all
  • Mark Hutchings

  • 2008 1212 - Asset Purchase Agreement among the Sellers Party Hereto AIG Securities Lending Corp., as AIG Agent American International Group Inc., Maiden Lane II LLC., as Buyer and Federal Reserve Bank of New York, as Controlling Party - 47p

  • 2008 1212 - AIG - 8K - 3p

  • 2011 - GAO - Review of Federal Reserve System Financial Assistance to American International Group, Inc - 152p 

  • 2014 05 - SECURITIES LENDING AND THE UNTOLD STORY IN THE COLLAPSE OF AIG, by Hester Peirce - No. 14-12 - 82p

  • 2021 - Yale - The Rescue of American International Group Module B: The Securities Borrowing Facility, Journal of Financial Crises - 28p
  • 2021 - Yale - The Rescue of American International Group Module D: Maiden Lane II - 28p

2008 - AIG Annual Report - 352p

  • During this time period, AIG was engaged in a review of measures to address the liquidity concerns in AIG’s securities lending portfolio and to address the ongoing collateral calls with respect to the AIG Financial Products
    Corp. and AIG Trading Group Inc. and their respective subsidiaries (collectively, AIGFP) super senior multi-sector
    credit default swap portfolio, which at July 31, 2008 totaled $16.1 billion. (p3)
  • Resolution of U.S. Securities Lending Program (p41)
  • See Investments — Securities Lending Activities and Note 5 to the Consolidated Financial Statements for further information on the transaction with ML II. (p42)
  • GICs and GIAs are entered into by AIG’s insurance subsidiaries, principally SunAmerica Life Insurance Company and AIG Financial Products Corp. and its subsidiaries, respectively.  (p329)
  • Subsidiaries of Registrant (p330)
  • The domestic securities lending program was unwound in December 2008.
  • The foreign program was unwound in March 2010.
  • 2008 Form 10-K, pages 209 and 210 and 2009 Form 10-K, page 210
    During the fourth quarter of 2008, in connection with certain securities lending transactions, AIG failed to obtain or maintain collateral sufficient to fund substantially all of the cost of purchasing securities lent to various counterparties. In some cases, this shortfall.

2010 - SEC / AIG - Correspondence - [link]

The rapid decline of AIG stemmed from liquidity problems and two important business lines:

  • Number one, credit default swaps. A credit default swap is a derivative instrument that provides insurance-like protection to investors against credit losses from the underlying obligations which were typically mortgage loans.
  • Number two, securities lending, a business strategy implemented by a handful of AIG’s State insurance subsidiaries. (p17)

-- STATEMENT OF SCOTT M. POLAKOFF, ACTING DIRECTOR, OFFICE OF THRIFT SUPERVISION (OTS)

2009 0318 - GOV - Federal Aid to AIG Insurance, Regulators Panel - [PDF - 380p, Video-CSPAN]

  • 2009 0205 - WSJ - An AIG Unit's Quest to Juice Profit - WSJ - Securities-Lending Business Made Risky Bets. They Backfired on Insurer, By Serena Ng and Liam Pleven - [LINK]
  • Peter Adamczyk, Securities Lending -A Growing Investment Strategy, AIG Global Investment Group (Apr. 2006) - Wishlist
  • But one of the ironies, I recollect, is at the point they recognized in London, their Financial Products, that this was problematic and started trying to disengage, ironically, the company regulated by the Insurance Commission of New York began to start lending their securities for cash and investing that cash in mortgage backed securities, which one hand was not talking to the other.  (p15)

-- Chairman Jack Reed (RI)

2011 0914 - GOV - Emerging Issues in Insurance Regulation - 51p

  • People like to say, ‘‘Oh, well, AIG, the portion of AIG that got AIG into trouble was not about insurance.’’
    • Well, that is true with respect to its credit default swaps.
  • But a major problem at AIG was its securities lending business.
    • Its securities lending business involved the lending of insurers’ assets.
  • So insurers’ at AIG were intimately involved in the problem.  (p10)

--  Daniel Schwarcz

Finding the Right Capital Regulations for Insurers - 105p

  • What AIG did, in addition to its runnable securities-lending business, was get involved in a new industry or a new business, writing credit default swaps where it didn’t understand the risks posed in that business.
  • That is the kind of thing that a regulator is supposed to be able to step in and caution a firm that it should pay attention to. And I think that forgetting the lessons of AIG is unwise to the extreme.

--  David Zaring, Associate Professor, Legal Studies and Business Ethics, The Wharton School

  • 2017 0328 - GOV - THE ARBITRARY AND INCONSISTENT NON-BANK SIFI DESIGNATION PROCESS
    • [PDF-83p, VIDEO-youtube]
    • House - COMMITTEE ON FINANCIAL SERVICES - SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
  • As a result of disruption in the credit markets during 2007, AIG took steps to enhance the liquidity of its portfolios, including increasing the liquidity of the collateral in the securities lending program.  (p38)

2007 - AIG - 10K - 276p

Mr. FOSTER <Congressman>. Thank you.

  • I have a couple of questions on your securities lending business, which I take it was responsible for a significant fraction of the difficulties.
  • And first off, who owned the securities that were being
    loaned, which business entity?

Mr. GREENBERG. Probably the life companies.
Mr. FOSTER. The life companies, OK. And so now, and now, who was actually performing the loaning and making the decisions?
Mr. GREENBERG. I think that was done by Win Neuger, the head of investments.
Mr. FOSTER. So this was done individually for each one of the life business units.
Mr. GREENBERG. I think he was the overall head of investments. And who was carrying out that day to day on his instructions, I can’t tell you. I’m not there.
Mr. FOSTER. I’m trying to understand if these were sort of tunnelling through the ring fence that was supposedly around——
Mr. GREENBERG. Normally what happens in security lending, an insurance company, a life company, has a huge amount of assets that’s been invested, securities.

  • A lot of banks and investment banks want to borrow them, say, for 30 days.
  • And they give you cash.
  • And you normally invest the cash in short-term receivables that will earn you 3 to 5 or 6 basis points.
  • Somebody got exuberant and were investing in for 30 base points, as I understand it, and a lot of it had toxic subprime assets involved.

And so when the banks wanted back their cash, AIG couldn’t sell the securities at that amount to cover that. And the Fed set up——
Mr. FOSTER. Could you explain why this wasn’t picked up by the individual insurance regulators?
Mr. GREENBERG. I don’t know. I wasn’t there.
Mr. FOSTER. So this you would view as a failure of the individual insurance regulator, the fact that this was allowed to occur?
Mr. GREENBERG. I would say that’s probably right, unless the amount involved was not considered by the regulator to be of such amount as to impair the solvency of the company.

2009 0402 - GOV - THE COLLAPSE AND FEDERAL RESCUE OF AIG AND WHAT IT MEANS FOR THE U.S.

  • That day, the New York Fed created two off-balance-sheet entities to hold AIG’s bad assets associated with securities lending (Maiden Lane II) and CDS (Maiden Lane III).
  • Over the next month, the New York Fed loaned Maiden Lane II $19.8 billion so that it could purchase mortgage-backed securities from AIG’s life insurance company subsidiaries.
  • This enabled those subsidiaries to pay back their securities lending counterparties, bringing to $43.7 billion the total payments AIG would make with government help.
  • These payments are listed in figure 20.4.135  (p376)

2011 01 - THE FINANCIAL CRISIS INQUIRY REPORT: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States - 662p