Members of Congress Want AIG Collateral Payments Investigated

By Alyn Ackermann
A.M. Best
March 27, 2009


(BestWire Services) - A group of federal lawmakers is seeking an investigation into some $50 billion in collateral on credit default swap contracts that American International Group Inc. paid to major banks and financial institutions.

In essence, we would like to know if the AIG counterparty payments, as made, were in the best interests of the taxpayers who provided the funding and in the best interests of re-establishing long-term economic stability, said the letter to Neil M. Barofsky, the inspector general for the Troubled Assets Relief Program, signed by 27 Democratic members of Congress.

Noting that Barofsky's office is responsible for overseeing expenditures of TARP funding, the letter said, 'We believe that an investigation into the AIG counterparty payments is a critical component of the oversight effort.' The letter was drafted by Rep. Elijah Cummings, D-Md., who has been a vocal critic of AIG's actions since it first began receiving federal assistance in September 2008. The federal rescue plan keeping the company solvent has grown to $182.5 billion.

Earlier this month, AIG (NYSE: AIG) released the names of the counterparties paid with funding through the federal bailout, under threat of subpoenas from Congress.

The top companies receiving the collateral included Societe Generale, with $11.9 billion; Deutsche Bank, $11.8 billion; Goldman Sachs, $12.9 billion; Merrill Lynch, $6.8 billion; and Barclays, $8.5 billion (BestWire, March 17, 2009).

AIG has been struggling to move forward with its plan to reorganize itself and sell off enough assets to repay funding it receives under the federal rescue plan. The company has suffered an intense backlash from the public and politicians over $165 million in retention bonuses it paid to employees of its Financial Products unit, which wrote the credit default swap contracts that drove AIG to the brink of bankruptcy last year (BestWire, March 25, 2009).

Most AIG insurance companies currently have a Best's Financial Strength Rating of A (Excellent) with a negative outlook.

Shares of AIG were $1.04 on the afternoon of March 27, down 5.5% from the previous close.

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