American International Group Inc. finally revealed which financial institutions benefited most from the $170 billion government rescue package that has kept the firm out of bankruptcy.
The three biggest recipients of the public money that AIG passed along to counterparties in various transactions were Goldman Sachs Group Inc. ($12.9 billion), Societe Generale Group ($11.9 billion) and Deutsche Bank ($11.8 billion).
Bank of America Corp. and Merrill Lynch & Co., also figured prominently on the list of payees that AIG included in a surprise press release. The two companies, which completed a merger on Jan. 1, received a collective $12 billion.
AIG got an emergency $85 billion loan from the Federal Reserve last September, as part of a rescue plan that gave the government an 80 percent stake in the insurance and investment firm. The aid package later grew to twice that amount as AIG's troubles deepened.
AIG has been under intense pressure from members of Congress to reveal where the money pouring in and out of the company went.
AIG said $22.4 billion of the initial $85 billion went to provide counterparties to certain credit default swap transactions with additional capital. The biggest recipients of those payments, made between Sept. 16 and Dec. 31, were Societe General, the big French bank ($4.1 billion), Deutsche Bank, of Germany ($2.6 billion) and Goldman Sachs, which has headquarters in New York ($2.5 billion).
Credit default swaps are insurance-like transactions in which a buyer makes payments to a seller -- in this case AIG -- in return for a payout if a specific bond or other debt security goes into default. AIG got hammered when the economy slumped and defaults rose, leaving it unable to make good on all of its obligations.
In November, AIG and the Federal Reserve Bank of New York created an entity called Maiden Lane III to buy the securities underlying some of the credit-default swap transactions from the counterparties, thus cancelling the contracts.
AIG said $27.1 billion was paid out in those transactions. Societe Generale got $6.9 billion from Maiden Lane III, Deutsche Bank got $2.8 billion and Goldman Sachs got $5.6 billion.
Henry M. Paulson Jr., who was Treasury Secretary when the AIG rescue package was put together, is the former chairman and chief executive of Goldman Sachs. Timothy F. Geithner, who succeeded Paulson at Treasury, was president of the Federal Reserve Bank of New York and also played a key role in the AIG bailout.
Merrill Lynch received $1.8 billion from AIG as additional collateral on credit default swaps, and got $3.1 billion from Maiden Lane III. Bank of America got $700 million from AIG through those two mechanisms.
Merrill Lynch and Bank of America announced their merger on Sept. 15, 2008. That was the same day Lehman Brothers Holdings Inc. filed for bankruptcy, and one day before AIG got rescued.
AIG paid $43.7 billion to partners in securities-loan deals. Barclays Bank, of Great Britain, got $7 billion, followed by Deutsche Bank, with $6.4 billion. BNP Paribas, of France, got $4.9 billion, Goldman Sachs got $4.8 billion and Bank of America with $4.5 billion.
Bank of America and Merrill Lynch together received $7.1 billion.
According to New York regulators, AIG loaned stock held by its insurance subsidiaries to banks and other parties, in part so that they could use the shares in short-selling transactions. AIG received cash collateral from those borrowers, and used much of the money to make short-term investments in mortgage-backed securities. Many of those investments backfired, leaving AIG well short of the cash it needed to give back to the borrowers when they returned the shares.
AIG also used $12.1 billion of the government aid for payments to U.S. municipalities that had purchased Guaranteed Investment Agreements. Government entities typically use those agreements, so named because they provide a guaranteed rate of return, to safeguard money from bond issues until those funds are needed.
Goldman Sachs got $25 billion in additional taxpayer capital in October by selling shares of its preferred stock to the government as part of the $700 billion Troubled Asset Relief Program.
Bank of America and Merrill Lynch received $45 billion in TARP money between them.
published March 15, 2009, 0 Comments
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