NEW YORK, Dec 10, 2008 (BUSINESS WIRE) -- American International Group, Inc. (AIG) has issued the following statement regarding an article that appeared today in The Wall Street Journal:"A story in today's Wall Street Journal incorrectly reports that AIG has a previously undisclosed obligation to counterparties of about $10 billion. The Journal's story relates to AIG Financial Products' multi-sector credit default swap portfolio. Included within that $71.6 billion portfolio (notional amount as of September 30) is approximately $9.8 billion of swaps that were sold as credit protection on "synthetic" securities. The swaps on these synthetic securities are also referred to as "cash settlement" or "Pay As You Go" (PAUG) swaps because they are settled in cash as and when losses are taken.
The majority of the multi-sector CDS swaps were written as "physical settlement" swaps, where AIG is required to physically buy the underlying collateralized debt obligation (CDO) bond in the event of a CDO credit event.
The $9.8 billion notional amount does not represent a loss to AIG or a debt it owes to counterparties. It represents the notional value of the maximum potential cash settlement portion of the multi-sector portfolio. Cash settlement swaps have lower liquidity risk because they are PAUG. A credit event on a physical settlement swap requires AIG to buy the total underlying CDO tranche in an amount equal to AIG's full notional exposure whereas a PAUG contract only obliges AIG to pay losses on that tranche as and when they occur therefore reducing the cash impact.
AIG is addressing its exposure to its entire multi-sector CDS portfolio through its existing credit agreement with the Federal Reserve Bank of New York. As previously announced, AIG and the Federal Reserve have funded the Maiden Lane III facility, which has negotiated agreements to settle $53.5 billion of AIG's $71.6 billion CDS portfolio.
The notional amount attributable to the cash settlement portion of the AIG Financial Products multi-sector credit default swap portfolio has been consistently included in the total AIG Financial Products multi-sector credit default swap exposure in AIG's SEC filings and is explained on page 117 of AIG's Quarterly Report on Form 10-Q for the period ending September 30, 2008."
American International Group, Inc. (AIG), a world leader in insurance and financial services, is the leading international insurance organization with operations in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional and individual customers through the most extensive worldwide property-casualty and life insurance networks of any insurer. In addition, AIG companies are leading providers of retirement services, financial services and asset management around the world. AIG's common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo.
Posted by guest , Dec 10, 2008 2:40PM
what?
Posted by guest , Dec 10, 2008 2:53PM
fights between accountants are the worst
Posted by guest , Dec 10, 2008 2:59PM
Too accountanty, didn't read.
Posted by guest , Dec 10, 2008 3:01PM
Whew! I was worried after I read the WSJ article.
Posted by guest , Dec 10, 2008 3:02PM
@1 LMAO
Posted by guest , Dec 10, 2008 3:15PM
WSJ, new troublemakers of the street.
- Rupert M.
Posted by guest , Dec 10, 2008 3:19PM
"In addition, AIG companies are leading providers of retirement services, financial services and asset management around the world."
They may want to rethink that typical co. statement they issue out.
Posted by guest , Dec 10, 2008 3:19PM
potato, potatoe
Posted by guest , Dec 10, 2008 3:22PM
Sometimes they don't think it be like it is but it do
Posted by guest , Dec 10, 2008 3:25PM
@9 Learn Engrish - sucka!
Posted by guest , Dec 10, 2008 3:28PM
10- that is a quote from Oscar Gamble you chump
Posted by Anal_yst , Dec 10, 2008 3:31PM
where is the geico caveman?!?!
Posted by guest , Dec 10, 2008 3:32PM
@10 - grow your own fro and... Learn Engrish - suckafish!
Posted by guest , Dec 10, 2008 3:35PM
WSJ quoted AIG's total exposure notional. Some of the CDS's only payout according to tranche which I guess from what they're saying is alot less than the 10 bil notional. Who knows how much less.
Posted by guest , Dec 10, 2008 3:36PM
It's not how much we've lost, it's how much we could lose?
Posted by guest , Dec 10, 2008 3:40PM
Does anyone know if you can overdose on Commits?
Posted by guest , Dec 10, 2008 3:47PM
Does anyone know if you can overdose on NyQuil?
Posted by guest , Dec 10, 2008 3:54PM
Nice #15.
It's not how much we borrowed, it's how much more we can take Uncle Sam for.
Posted by guest , Dec 10, 2008 3:54PM
17, not sure but Commits/NyQuil makes for a good midday speedball.
Posted by guest , Dec 10, 2008 4:02PM
Random question, which is better, Factset or Bloomberg?
Posted by guest , Dec 10, 2008 4:04PM
#9 Vintage Oscar Gamble, +1
Posted by guest , Dec 10, 2008 4:06PM
yes, it is PAUG, which includes writedown events, and depending on which tranches this is written on could be a huge chunk all at once.... so to say the exposure is lessened any because it is cash settled is stupid
Posted by guest , Dec 10, 2008 4:24PM
the situation is fluid
Posted by guest , Dec 10, 2008 4:37PM
@3 - You mean "too intelligent for me, didn't read."
Posted by guest , Dec 10, 2008 5:23PM
Tried to read: sounded like my DB boss who tries to use big words all the time, but no one can understand him.
Posted by RonBurgundy , Dec 10, 2008 5:30PM
NEEL KASHKARI IS NOTHING BUT DIRTY SCUMBAG CHAI WALLAH
Hey Neel: how does Hank Paulson's ass taste?
Posted by guest , Dec 10, 2008 6:03PM
@18 These guys are like the mechanics in Vacation.
"How much is it?"
"How much you got."
Posted by guest , Dec 10, 2008 8:02PM
All swaps are MTM'd on a daily basis (pay as you go).
Posted by guest , Dec 11, 2008 7:09AM
If the CDOs are worthless, what does it matter if they have to take possession or not--the liability is the same. Also, it kind of begs the question of what is the market value of these things, which I gather at least approaches zero for all practical purposes, barring some miracle of divine intervention into the economy.
I suppose they emphasize "multi-sector" to come off as diversified? Like in separate compartments of the Titanic?
And PAUG (pay-as-you-go)?
"We have met the counterparty and the counterparty is us."