Saturday, January 30, 2010

Better Late Than Never

AIG in a filing with the Securities and Exchage Commission has finally released a detailed list of the derivatives contracts covered by bailout funds provided in the fall of 2008 to AIG by the federal governement. The payouts went through AIG to holders of credift default swaps against underlying Collateralized Debt Obligations (CDOs) worth $62 billion.

By Robert Stowe England
January 30, 2010

American International Group, Inc. (AIG) released Friday a schedule of Collaterized Debt Obligation (CDO's) that were made public two days earlier by a release of the same information by Rep. Darrell Issa (R-CA).

The list includes all the derivatives contracts in a federal bailout of AIG to make whole $62 billion in CDOs at big Wall Street firms and large banks around the globe who had purchased Credit Default Swaps from AIG as insurance against the CDO's.

Many of the CDO's were loaded with mortgage-backed securities written on pools of mostly subprime loans.

Under an agreement brokered by the New York Fed between AIG and the counterparties on Oct. 31, 2008, the counterparites agreed to terminate the derivatives, which were then sold to a new entity set up by the New York Fed and titled Maiden Lane III LLC.

The counterparties retained the collateral they had required AIG to post with them against the CDO's covered by the credit default swaps.

Maiden Lane III received equity and loans from the New York Fed to purchase the underlying CDO's at a discounted value, spelled out in Schedule A's five pages listing of each transaction. In turn, Maiden Lane III entered into a Shortfall Agreement with AIG, whereby AIG would pay any shortfall on the CDO's.

Holders of the CDO's were made whole at 100 percent from bailout funds from the federal government, an arrangement that has become controversial and was the focus of hearings before the House Oversight and Government Reform Committee where Treasury Secretary Timothy Geitner was grilled at length about it.

In an amended 8-K filing January 29, AIG wrote:
Due to the recent public disclosure of the full contents of Schedule A to the Shortfall Agreement, dated as of November 25, 2008, and as amended as of December 18, 2008, between Maiden Lane III LLC and AIG Financial Products Corp., American International Group, Inc. is filing this Amendment to Form 8-K in order to file an unredacted version of Schedule A. Pursuant to an SEC order granting confidential treatment, the information previously redacted from Schedule A qualified as confidential commercial or financial information under the Freedom of Information Act.

The complete list of swap transactions with the values of underlying CDO's can be found at this link:

http://www.sec.gov/Archives/edgar/data/5272/000095012310006481/y81800bexv10w1.htm

Copyright © 2010 by Robert Stowe England. All Rights Reserved

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