AIG, New York Fed Pay Banks in Full, Limit Disclosure: Timeline
Includes the word "redacted" more than 1,000 times in regulatory filings tied to agreements for paying banks that bought credit-default swaps
By Michael J. Moore
January 21, 2010
Jan. 21 (Bloomberg) -- American International Group Inc. (AIG), the bailed-out insurer, included the word "redacted" more than 1,000 times in regulatory filings tied to agreements for paying banks that bought credit-default swaps from the company.
The insurer, asked by the Federal Reserve Bank of New York to limit disclosure, excluded a list of banks and collateral postings from a pair of 2008 filings, and then sought confidential treatment for the document in 2009 before making redacted versions available to the public.
The House Oversight and Government Reform Committee has ordered the New York Fed to turn over e-mails and phone logs from Timothy F. Geithner tied to AIG's rescue in 2008, when he led the regulator. Lawmakers have criticized AIG's rescue, which swelled to $182.3 billion, as a "backdoor bailout" of banks including Goldman Sachs GroupInc., and Geithner, now Treasury secretary, agreed to testify before the panel.
Below is a timeline outlining New York-based AIG's disclosures along with comments from the New York Fed and the Securities and Exchange Commission to the insurer.
Nov. 10, 2008: AIG says the New York Fed will contribute as much as $30 billion to a facility to retire credit-default swaps sold by the insurer to protect banks from losses on securities tied to subprime mortgages. The insurer will contribute as much as $5 billion, and the facility, named Maiden Lane III, will buy about $70 billion in collateralized debt obligations from the banks that bought protection, AIG says.
Nov. 11, 2008: Elias Habayeb, then-Chief Financial Officer of AIG's Financial Services division, e-mails executives that he wants to clear up "confusion" about the price the company will pay to retire derivatives. "The Fed offered all counterparties par," Habayeb says. "I think we should be clear on that point."
Nicholas Ashooh, then-senior vice president in charge of AIG's communications, replies to Habayeb that his proposed explanation "would be very helpful, but I understand that the Fed is very sensitive and we have to clear it with them."
Nov. 24, 2008: Geithner is nominated for Treasury secretary by President-elect Barack Obama. Geithner is recused from "working on issues involving specific companies, including AIG," a Treasury spokeswoman later says.
Nov. 25, 2008: Maiden Lane III begins buying CDOs from AIG's counterparties.
Dec. 2, 2008: AIG submits a regulatory filing detailing the terms of the Maiden Lane III agreement.
The filing contains a so-called shortfall agreement between Maiden Lane III and AIG listing terms of payments should the vehicle need more funds. The accord refers to Schedule A, the document listing counterparties, collateral postings and market declines on the derivative contracts. The Schedule A isn't included.
The filing states that on Nov. 25, "ML III bought approximately $46.1 billion in par amount of Multi-Sector CDOs through a net payment to CDS counterparties of approximately $20.1 billion, and AIGFP terminated the related CDS with the same notional amount. The aggregate cost of the purchases and terminations was funded through approximately $15.1 billion of borrowings under the Senior Loan, the surrender by AIGFP of approximately $25.9 billion of collateral previously posted by AIGFP to CDS counterparties in respect of the terminated CDS and AIG's equity investment in ML III of $5 billion."
Dec. 21, 2008: AIG sends a draft of its regulatory filing detailing the purchase of additional CDOs to New York Fed lawyers. "Counterparties received 100 percent of the par value of the Multi-Sector CDOs sold and the related CDS have been terminated," the draft says.
Dec. 23, 2008: The New York Fed sends AIG a marked-up version of the filing draft, crossing out the explanation of AIG paying 100 percent.
The New York Fed also crosses out a reference to an amendment of the company's shortfall agreement and asks if including the amendment is "necessary or helpful?"
Dec. 24, 2008: AIG submits filing saying it retired another $16 billion in credit-default swaps after buying the underlying securities through Maiden Lane III, bringing the total collateralized debt obligations purchased to about $62 billion.
The filing omits the sentence that said "counterparties received 100 percent."
The filing has the amendment to the shortfall agreement, which mentions Schedule A without including it.
Dec. 30, 2008: The SEC writes a letter to then-Chief Executive officer Edward Liddy telling AIG to provide a Schedule A for the shortfall agreement in its Dec. 24 and Dec. 2 filings. "You are required to file the entire agreement, including all exhibits, schedules, appendices and any document which is incorporated in the agreement," the SEC's letter says.
Jan. 13, 2009: Peter Bazos, an outside lawyer for the New York Fed, writes to AIG in an e-mail, asking the company to "Please omit/redact the column headings included in the Schedule" in an amendment of the Dec. 24, 2008, filing.
Diego Rotsztain, then an outside lawyer for the New York Fed, writes the company an e-mail saying "AIG should be getting a call from the SEC to discuss the special procedures to be followed in connection with the submission of the confidential- treatment request."
Jan. 14, 2009: Anthony Greco, an outside lawyer representing AIG, writes to Bazos and asks, "We will defer to you on this, but could you please provide us the basis for the headings being confidential? The letter appears to be directed towards the information contained in the columns as opposed to the headings themselves."
AIG files an amendment to the accord. In the page available to the public with the headline "Schedule A to Shortfall Agreement," the insurer excludes the table listing banks, writedowns and collateral postings.
"The confidential portion of this Schedule A has been omitted and filed separately with the Securities and Exchange Commission," AIG says in the filing. "Confidential Treatment has been requested for the omitted portions."
Jan. 27, 2009: Geithner is sworn in as Treasury secretary and will be replaced at the New York Fed by William Dudley.
March 5, 2009: Senators including Christopher Dodd, a Connecticut Democrat, tell Federal Reserve Vice Chairman Donald Kohn that the regulator should reveal the banks that bought credit-default swaps from AIG.
"We need AIG to be stable and to continue in a stable condition," Kohn tells a Senate panel. "And I would be very concerned that if we gave out the names of counterparties here, people wouldn't want to be doing business with AIG."
March 12, 2009: Kathleen Shannon, an AIG deputy general counsel, writes to the insurer's executives in an e-mail about the conflicting pressures from the New York Fed and SEC regarding amendments to the filings. She says she believes the New York Fed doesn't want the insurer to include names of the tranches of the securities tied to the swaps or their Committee on Uniform Securities Identification Procedures numbers, or CUSIPs.
"In order to make only the disclosure that the Fed wants us to make," Shannon writes, "we need to have a reasonable basis for believing and arguing to the SEC that the information we are seeking to protect is not already publicly available."
AIG's then-General Counsel Anastasia Kelly e-mails the New York Fed a draft of a letter to the SEC saying that the insurer intends to withdraw its request for confidential treatment because some of the information had been reported by the media.
March 13, 2009: New York Fed lawyer James Bergin writes an e- mail to the New York Fed and AIG executives that he wants to set up a 2 p.m. conference call with the insurer and the SEC. "AIG is still confirming their comfort with certain of the redactions we'd like made on the 8-K schedule," Bergin writes.
Bergin writes in a separate e-mail that "I'd suggest also we have a call among AIG and FRBNY prior to the 2 p.m. so that we have our ducks in a row."
March 15, 2009: AIG, under pressure from regulators, releases a statement that discloses the names of its counterparties, which includes banks such as Goldman Sachs and Deutsche Bank AG. The counterparties received about $50 billion in forfeited collateral postings and Maiden Lane III payments since the Sept. 16, 2008, rescue, the statement says. The statement lists a sum of payments to each bank. It doesn't identify the securities tied to the swaps or list the value of individual purchases by the banks.
March 16, 2009: AIG amends its Dec. 2 and Dec. 24 filings to include a list of derivative transactions and the insurer's counterparties. The updated Dec. 2 filing includes a Schedule A that lists the names of counterparties on about 165 contracts, while the amended Dec. 24 filing includes about 180 contracts. AIG redacts the notional value of the trades, market declines, collateral posted, tranche names and CUSIPs. Each of the Schedule A documents includes the word "redacted" more than 800 times.
April 28, 2009: New York Fed posts a portfolio breakdown for Maiden Lane III on its Web site. The summary includes the value of assets that are tied to residential- and commercial-mortgage- backed securities and credit ratings for the holdings.
May 15, 2009: AIG amends its Dec. 2 and Dec. 24 filings to include the lists of collateral postings and mark-to-market losses on derivatives contracts. The amended Dec. 24 filing also includes the CUSIPs, tranche names and notional amounts for 10 contracts. The word "redacted" appears more than 400 times in each filing.
May 22, 2009: AIG may withhold the redacted information from Schedule A until Nov. 25, 2018, a decade after the date when Maiden Lane began purchasing assets, the SEC says.
The information "qualifies as confidential commercial or financial information under the Freedom of Information Act," based on statements from AIG, the SEC says in a letter.
Nov. 17, 2009: Neil Barofsky, the special inspector general charged with policing the Troubled Asset Relief Program, says disclosure of swaps details didn't bring on the "dire consequences" that Kohn said could accompany its release.
"Notwithstanding the Federal Reserve's warnings, the sky did not fall; there is no indication that AIG's disclosure undermined the stability of AIG or the market," Barofsky wrote in a report. "The default position, whenever government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with government funds."
Jan. 7, 2010: Bloomberg reports that e-mails obtained by Representative Darrell Issa show the New York Fed pressed AIG to withhold details from the public about the insurer's payments to banks.
Jan. 8, 2010: Thomas Baxter, general counsel of the New York Fed, writes to lawmakers saying efforts to limit AIG's disclosure "did not warrant" Geithner's attention.
Jan. 13, 2010: Edolphus Towns, the New York Democrat who is chairman of the oversight committee, subpoenas Geithner's e- mails, phone logs and meeting notes tied to the bailout of AIG.
Jan. 19, 2010: The New York Fed produces more than 250,000 pages
of documents in response to the House subpoena. The regulator
says that it "assisted AIG in ensuring the accuracy of its
disclosures and protected important U.S. taxpayer interests."
AIG was responsible for its disclosures, and the New York Fed
asked AIG to remove a reference to the bank payments because it
wasn't "precisely accurate," the regulator says in a statement.
Click here to return to FBIC homepage