AIG: The American Idol of Greed

Rapidly tapping into taxpayers' money, American International Group has accessed about $90 billion from the government since the Federal Reserve came to its rescue last month.

AIG said Friday that as of October 22, it had outstanding borrowings of $72 billion under the two-year $85 billion revolving credit facility. It is using these funds primarily for collateral obligations related to the AIG Financial Products Corp. credit default swap portfolio and for general corporate purposes.

In addition, AIG subsidiaries had received $18 billion in cash collateral in exchange for third-party, investment-grade fixed-income securities borrowed by the New York Fed under AIG's $37.8 billion Securities Lending Agreement arranged with the Federal Reserve Bank of New York.

The name of the game in the financial-services business these days can be summed up in three words: assets under management. He who ends up with the most, wins.

Witness the $48 billion merger of Travelers Group with Citicorp. This combination will create a huge new financial-services company--one with an insurance arm (Travelers), a banking unit (Citibank), and an investment house (Salomon Smith Barney).

The new firm, to be called Citigroup, will have over 100 million customers worldwide and control roughly $1.36 trillion in client investment assets (not counting bank deposits). That barely edges out Merrill Lynch, which has $1.35 trillion in client assets under management. UBS, the product of this year's merger between Union Bank of Switzerland and Swiss Bank, controls $1.09 trillion in client assets.

More recently, rumors have been flying that insurance giant AIG will try to snap up Goldman Sachs after Wall Street's most prestigious investment bank goes public as early as this fall. There's also talk that securities firm Lehman Brothers or brokerage house PaineWebber could fall prey to a large European bank like Deutsche Bank.

Given the grab for client assets under way in the industry, Worth was surprised to learn there's no single source of reliable information that ranks the top firms. So we researched our own list of the top ten. Included in each firm's total are institutional assets, brokerage accounts, mutual funds, variable annuities, and private-banking accounts--everything but retail bank deposits. We also looked only at U.S. companies.

Client assets, of course, aren't the only measure of a financial company's clout. Revenue, equity capital, and the institution's own asset base all provide different pictures of a firm's size and strength. The new Citigroup, for instance, will have $44 billion in capital. But it won't stay on top for long.

When NationsBank completes its previously announced merger with BankAmerica (expected in early October), it will have $48.9 billion.

The Top Ten in Client Assets (in Billions)
1.	Merrill Lynch The current leader in the grab for client assets under management isn't resting on its laurels. It wants to hit the $2 trillion mark by 2002.	$1,352
2.	Travelers The Merger with Citicorp, expected in early October, will bump it to the top of this list--barely. The new firm, to be called Citigroup, will have $1.36 trillion in client assets.	1,140
3.	UBS Formed by the merger of Union Bank of Switzerland and Swiss Bank, this firm is on our list because its institutional business is managed by UBS Brinson in Chicago.	1,093
4.	Fidelity Investments The total here includes the $616 billion managed by Fidelity's horde of mutual funds. Most of the rest is housed at Fidelity's discount-brokerage operation.	941
5.	Barclays global investors This San Francisco firm, a unit of Barclays Bank, has only about 1,400 clients. But they are very large clients--institutions with an average of $400 million each.	564
6.	Mellon Bank This outfit's Dreyfus subsidiary accounts for $110 billion of its client assets under management. Mellon itself focuses on institutions and high-net- worth individuals.	460
7.	State Street The vast majority of its total comes from its 8,000 institutional accounts as opposed to its 16,000 retail customers, including the owners of its SSgA mutual funds.	459
8.	Charles Schwab This discount broker, based in San Francisco, makes the list on sheer volume, with 5.4 million customers. A full half of its stock trading now occurs on the Internet.	400
9.	Vanguard Group Index funds are at the fore of Vanguard's product offerings. So while it has lots of money in its coffers, the market itself dictates Vanguard's investments.	375
10.	Morgan Stanely Dean Witter Though last on this list, Morgan Stanley fairs better by other traditional measures of financial clout. For instance, it is third in total revenue and second in total assets.	374*
Data as of 6/ 30/98. Data as of 5/31/98. Sources: Company reports and Market Guide.*

NEW YORK (AP) — Concerns about the health of American International Group Inc. were renewed Thursday, a day after the insurance giant said it would receive an additional $37.8 billion loan from the Federal Reserve.

"The bottom line is, they need more liquidity than they thought," said Mark Lane, an analyst for William Blair & Co. The new loan is on top of a two-year, $85 billion loan AIG received last month from the Fed in an effort to stay in business.

AIG is apparently facing a liquidity crunch greater than was anticipated a month ago when the U.S. government first bailed out the company.

The new loan will help AIG cover requests from clients to redeem borrowed securities. In the past, these securities were previously loaned by AIG's insurance company subsidiaries to third parties in return for cash. The cash would then be reinvested in an attempt to increase returns.

Now, Lane said, clients who borrowed securities want to return them to AIG and get their cash back.

Amid the continuing credit crisis, financial firms have been hoarding cash for fear of future losses on investments. The situation has also spooked banks into nearly shutting off lending amongst each other.

The problem is, AIG "didn't have the money to give it back," Lane said. "That means that somebody else has to step in to take that other borrower out of the transaction."

That is where the new Fed loan comes into play. The New York Federal Reserve Bank will loan AIG the $37.8 billion and in return receive the securities that AIG now holds again, Lane said.

The arrangement will help AIG secure funds on an as-needed basis, the New York-based insurer said Wednesday in a statement.

On the brink of failure last month, AIG was bailed out when the government offered it an $85 billion loan during the ongoing credit crisis that saw Lehman Brothers Holdings Inc. file for bankruptcy protection and the sale of Merrill Lynch & Co. to Bank of America Corp. In return for the two-year loan, the government received warrants to purchase up to 79.9 percent of AIG.

As of Oct. 1, AIG had drawn $61.28 billion on the credit facility, of which about $54 billion has gone toward its securities lending and AIG's financial products area. The securities lending program, which is a common program among financial institutions, is the portion that is requiring the additional loan.

The rest of the money has been for other liquidity needs amid an "unprecedented" freezing of credit markets, Chief Executive Edward Liddy said last week.

AIG said last week it would sell off a number of business units to pay off its massive government loan. The company didn't specifically disclose all the assets it would sell or the expected prices from the sales. However, AIG did say it plans to retain its U.S. property and casualty and foreign general insurance businesses, and plans to retain an ownership interest in its foreign life insurance operations.

"By them having greater liquidity needs, it would suggest that maybe they would have to cut deeper," Lane said. "But it's unclear because we don't have more details."...

The deal for the additional Fed loan comes as AIG has been castigated by lawmakers and the White House for spending hundreds of thousands of dollars on a posh California retreat just days after getting the $85 billion federal bailout.

Lawmakers investigating AIG's meltdown said they were enraged that executives of AIG's main U.S. life insurance subsidiary spent $440,000 on the retreat, complete with spa treatments, banquets and golf outings. White House press secretary Dana Perino on Wednesday called the event "despicable."

AIG issued a statement Wednesday saying that the "business event" was planned months before the Sept. 16 bailout and that it was held for top-producing independent life insurance agents, not AIG employees. Of the 100 attendees, only 10 worked for the AIG unit hosting the event, it said.

The insurer said Liddy sent a letter to Treasury Secretary Henry Paulson "clarifying the circumstances" of the event. In the letter, Liddy assured Paulson that AIG is "reevaluating the costs of all aspects of our operations in light of the new circumstances in which we are all operating."

On Thursday, the insurer said it canceled a future California retreat that was to be held later this month.

WASHINGTON (AP) -- Days after it got a federal bailout, American International Group Inc. spent $440,000 on a posh California retreat for its executives, complete with spa treatments, banquets and golf outings, according to lawmakers investigating the company's meltdown.

AIG sent its executives to the coastal St. Regis resort south of Los Angeles even as the company tapped into an $85 billion loan from the government it needed to stave off bankruptcy. The resort tab included $23,380 worth of spa treatments for AIG employees, according to invoices the resort turned over to the House Oversight and Government Reform Committee.

The retreat didn't include anyone from the financial products division that nearly drove AIG under, but lawmakers still were enraged over thousands of dollars spent on outing for executives of AIG's main U.S. life insurance subsidiary.

"Average Americans are suffering economically. They're losing their jobs, their homes and their health insurance," the committee's chairman, Rep. Henry Waxman, D-Calif., scolded the company during a lengthy opening statement at a hearing Tuesday. "Yet less than one week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation."

Former AIG CEO Robert Willumstad, who lost his job a day after the Federal Reserve put up the $85 billion on Sept. 16, said he was not familiar with the conference and would not have gone along with it.

"It seems very inappropriate," Willumstad said in response to questioning from Rep. Elijah Cummings, D-Md.

"Those executives should be fired," Democratic presidential candidate Sen. Barack Obama said at a debate with Sen. John McCain on Tuesday, referring to the retreat participants. Obama also said AIG should give the Treasury $440,000 to cover the costs of the retreat.

But Eric Dinallo, superintendent of the New York State Insurance Department, said he could see the value of such a retreat under the circumstances.

"Having been at large global companies and knowing what condition AIG was in ... the absolute worst thing that could have happened" would have been for employees and underwriters in its life insurance subsidiary to flee the company.

"I do agree there is some profligate spending there, but the concept of bringing all the major employees together ... to ensure that the $85 billion could be as greatly as possible paid back would have been not a crazy corporate decision," Dinallo told the House committee.

The hearing disclosed that AIG executives hid the full range of its risky financial products from auditors as losses mounted, according to documents released by the committee, which is examining the chain of events that forced the government to bail out the conglomerate.

The panel sharply criticized AIG's former top executives, who cast blame on each other for the company's financial woes.

"You have cost my constituents and the taxpayers of this country $85 billion and run into the ground one of the most respected insurance companies in the history of our country," said Rep. Carolyn Maloney, D-N.Y. "You were just gambling billions, possibly trillions of dollars."

AIG, crippled by huge losses linked to mortgage defaults, was forced last month to accept the $85 billion government loan that gives the U.S. the right to an 80 percent stake in the company.

Waxman unveiled documents showing AIG executives hid the full extent of the firm's risky financial products from auditors, both outside and inside the firm, as losses mounted.

For instance, federal regulators at the Office of Thrift Supervision warned in March that "corporate oversight of AIG Financial Products ... lack critical elements of independence." At the same time, PricewaterhouseCoopers confidentially warned the company that the "root cause" of its mounting problems was denying internal overseers in charge of limiting AIG's exposure access to what was going on in its highly leveraged financial products branch.

Waxman also released testimony from former AIG auditor Joseph St. Denis, who resigned after being blocked from giving his input on how the firm estimated its liabilities.

Three former AIG executives were summoned to appear before the hearing. One of them, Maurice "Hank" Greenberg -- who ran AIG for 38 years until 2005 -- canceled his appearance citing illness but submitted prepared testimony. In it, he blamed the company's financial woes on his successors, former CEOs Martin Sullivan and Willumstad.

"When I left AIG, the company operated in 130 countries and employed approximately 92,000 people," Greenberg said. "Today, the company we built up over almost four decades has been virtually destroyed."

Sullivan and Willumstad, in turn, cast much of the blame on accounting rules that forced AIG to take tens of billions of dollars in losses stemming from exposure to toxic mortgage-related securities.

Lawmakers also upbraided Sullivan, who ran the firm from 2005 until June of this year, for urging AIG's board of directors to waive pay guidelines to win a $5 million bonus for 2007 -- even as the company lost $5 billion in the 4th quarter of that year. Sullivan countered that he was mainly concerned with helping other senior executives.

The auditor, accused by Ohio of violating securities laws in its work with AIG, will pay one of the highest amounts ever for an accounting firm in a class action.

PricewaterhouseCoopers agreed to pay $97.5 million to the state of Ohio to settle a class-action lawsuit on behalf of investors in troubled insurer American International Group, which uses PwC as its independent auditor.

The "partial" settlement, on Friday, came after the Ohio Public Employees Retirement System, the State Teachers Retirement System, and the Ohio Police and Pension Fund filed a lawsuit seeking damages for investors who bought AIG securities from 1999 to 2005. In the complaint, PwC was accused of violating securities laws relating to a market division scheme allegedly involving AIG that was disclosed in 2004 and improper accounting for reinsurance and other transactions.

In May 2005, AIG's accounting problems led to a $3.9-billion restatement, and removal of former CEO Maurice Greenberg.

The settlement is among the 10 highest to be paid by an accounting firm to settle a securities fraud class action lawsuit, according to Nancy Rogers, Ohio's attorney general. The arrangement, however, still needs to be approved by the U.S. District Court for the Southern District of New York in Manhattan.

"This important settlement represents a tremendous result for investors," said Chris Geidner, principal assistant attorney general. "We are pleased with this milestone and will continue to vigorously pursue investors' claims against the remaining defendants in the case."

"We have decided to settle the case at this stage to avoid the enormous litigation costs that would be incurred if the case continued against the firm, while at the same time eliminating any potential exposure," said Steve Silber, a PwC spokesman told The Columbus Dispatch. "The settlement does not contain an admission of wrongdoing by the firm, and we continue to believe that our work was in accordance with professional standards."

AIG currently is facing another lawsuit filed in May by the Jacksonville Police and Fire Pension Fund. The Florida fund accused the insurer of manipulating the market by making false statements about its financial health before disclosing a first quarter loss of $7.8 billion. PwC is not implicated in that lawsuit and in February it gave a warning sign of AIG's problems when it found that there was a "material weakness in its internal control" relating to the accounting of its credit default swaps portfolio.

Last month the U.S. government agreed to an $85 billion bail out of AIG in exchange for warrants to purchase 80 percent of the company, which is selling off several units of its business to repay the loan.

We're not talking about the fictional James Bond Import/Export Ltd. here-components of AIG were/are black budget dedicated units. Lucy Komisar documented this in her November 17, 2004 Corp Watch AIG article below.

This thread is a bit of speculation about known black budget funded operations (individuals and networks), based on open source info, that quite likely were using the services of AIG--which was nationalized by the criminal Bush/Cheney administration.

I'll start with a few categories-add your own and expand this thread since WE ALL have such a STAKE in AIG today.

"Dubai Ports completes sale of controversial US operations" (archived TomInTib thread started March 17, 2007)

The Bush Family that is involved in so many "private" black budget entities from The Carlyle Group to Tenet Health to Riggs Bank to Lehman Brothers to Cerberus to God knows what else???

There is also the joint venture ZonaFinanciera with Citigroup which in 2001 acquired Banamex in Mexico and placed alledged drug money launderer and trafficker Roberto Hernandez on the boards of directors. It is unclear whether ZonaFinanciera is involved in narcotics, however the choice of directors is a bit strange.

Additional information is available from The War Conspiracy by Peter Dale Scott, however that book was published in 1992 so has rare. An excerpt:

"For it is a striking fact that the law firm of Tommy Corcoran, the Washington lawyer for CATCL and (China Lobbyist) T.V. Soong, had its own links to the interlocking worlds of the China Lobby and of organized crime. His partner W.S. Youngman joined the board of U.S. Life and other insurance companies, controlled by C.V. Starr (OSS China) with the help of Philippine and other Asian capital. Youngman's fellow-directors of Starr's companies have included John S. Woodbridge of Pan Am, Francis F. Randolph of J. and W. Seligman, W. Palmer Dixon of Loeb Rhoades, Charles Edison of the postwar China Lobby, and Alfred B. Jones of the Nationalist Chinese government's registered agency, the Universal Trading Corporation. The Senate McClellan Committee heard that in 1950 U.S. Life (later part of AIG])(with Edison as a director) and a much smaller company (Union Casualty of New York) were allotted a major Teamsters insurance contract, after a lower bid from a larger and safer company had been rejected, Jimmy Hoffa was accused by a fellow trustee, testifying under oath before another committee, of intervening on behalf of US Life and Union Casualty, whose agents were Hoffa's close business associates Paul and Allen Dorfman

"We find the same network linking CIA proprietaries, war lobbies, and organized crime, when we turn our attention from CAT to the other identified supporter of opium activities, Sea Supply, Inc. Sea Supply, Inc. was organized in Miami, Florida, where its counsel, Paul E. Helliwell, doubled after 1951 as the counsel for C.V. Starr insurance interests, and also as the Thai consul in Miami..."

For the China connection, you can look at AIG & U.S.-China Business Council or Maurice Greenberg & The Nixon Center. There are numerous sweetheart deals with CITIC, the former China International Trust and Investment Company who was recently (Sept 17) in talks to acquire Morgan Stanley.

There are also quite a number of interesting deals with the Indonesian Lippo Group. ( Washington Weekly, March 24, 1997 )

Finance executives and corporate risk managers shouldn't expect the wobbling insurance giant to lower its premiums or make its insurance easier to obtain, however.

AIG, which by September 30 had drawn down $61 billion of the $85 billion credit facility provided by the U.S. Federal Reserve two weeks earlier, is seeking to strengthen itself by selling off some of its subsidiaries. The company intends to make itself look good enough to avoid a flight by corporate insurance buyers from its core U.S. property-casualty insurance businesses, which it plans to retain, Ed Liddy, its new chief executive officer and chairman, told analysts in a conference call Friday.

Although the insurance giant's policyholder retention rate for directors' and officers' liability coverage has "slipped six or seven points from what it used to be," it is holding on to buyers of other lines of insurance, he said in response to an analyst's question.

But because of the current uncertainty about the company's financial fortunes, it's important for the company to trim down "to show we are the AIG of old," he said, acknowledging that the company wouldn't really like the AIG of old once it has completed the divestitures it hopes to make.

Finance executives and corporate risk managers shouldn't expect AIG to lower its premiums or make its insurance easier to obtain, however. "We will maintain our underwriting and pricing discipline," said Liddy. "We are really good at that in our [property-casualty insurance] operation.... If you do that well, you'll be around for another day."

The company plans to retain its U.S. commercial property and casualty and foreign general insurance businesses and to continue to hold a stake in its foreign life insurance operations, according to an AIG press release issued Friday. Our insurance businesses — our regulated entities — are strong and well-capitalized," the new CEO contended. "Our policyholders are secure."

Otherwise, the company is looking to divest all or parts of its other salable businesses. Liddy, for instance, said he hopes to sell off AIG's U.S. life insurance, annuity, and pension businesses to a single buyer, while divesting part of its non-U.S. life insurance operations.

Further, AIG wants to "monetize" the assets of its financial-products and securities-lending divisions, according to Liddy. Plummeting values of the financial-products division's credit-default-swaps business led to the collapse of the company. "The financial-products operation has caused us a great amount of pain," he said, correcting an analyst who had characterized it as a "fair amount of pain." The subsidiary is "not entering into any new activity," he added.

In line with trying to squeeze some revenue out of those ailing businesses, Liddy is likely to be paying special attention to the vote on the bailout bill in the U.S. House of Representatives. That bill provides the Securities and Exchange Commission with the power to suspend mark-to-market accounting "for any issuer," and the insurance chief executive thinks such a suspension "could help us." Top executives of insurers and banks contend that fair-value accounting tends to unnecessarily lower the value of currently distressed assets that may be worth more than market values suggest.

Still, he added, "I don't hold out hope that we're going to have a wholesale abandonment of fair-value accounting."

They said the probe of the four high-profile companies at the center of the current financial crisis that has triggered the Bush administration's proposed $700 billion bailout was in the preliminary stage and no criminal charges were imminent.

While declining to confirm that the four companies were under investigation, FBI spokesman Richard Kolko said the FBI now is probing 26 cases of potential corporate fraud related to the collapse of the U.S. mortgage lending industry.

Just last week, FBI Director Robert Mueller told the U.S. Congress that 24 cases of potential corporate fraud were under investigation.

The FBI has been under increasing pressure from lawmakers to investigate fraud related to the mortgage crisis, which has expanded to a broader credit crunch. The financial-market turmoil has prompted the Bush administration to seek a $700 billion rescue package.

A spokesman for AIG said, "We don't have details about the FBI investigation. Of course we will cooperate with the FBI." A spokeswoman for Lehman Brothers declined comment. Officials at Fannie Mae and Freddie Mac were not immediately available.

In testimony before the House of Representatives Judiciary Committee, the FBI chief vowed to pursue corporate executives if necessary in mortgage fraud cases.

Mueller said the FBI was looking at all levels of the mortgage systems. With respect to the corporate probes, which could result in federal charges, the allegations would deal with misstatements of assets, he said.

The officials refused to discuss details of the investigation, and said the matter was sensitive and could affect the stock market and any bailout.

"It's not helpful to anyone to name specific corporations under investigation," one official said.

Justice Department spokesman Brian Roehrkasse said, "As part of our investigative responsibility, the FBI conducts corporate fraud investigations. The number of cases fluctuates over time, however we do not discuss which companies may or may not be the subject of an investigation."