AIG Global Restructuring Plan Overview, September 28, 2008.
We have asked to meet with you in order to give you an opportunity to substantially reduce your counterparty exposure to AIG and assist in promoting the long-term viability of the company as an ongoing concern. As evidenced by recent government actions, the viability of AIG is an important policy objective given the firm’s systemic importance. As we are sure you can appreciate, a collapse of AIG over the weekend of September 13th and 14th following so closely after the collapse of Lehman Brothers would have jeopardized the financial system in general, and your financial institution in particular, given your firm’s exposure to AIG at the time. Indeed, notwithstanding unprecedented governmental action, there has been a dramatic increase in AIG’s CDS spreads, which highlights the significant economic costs that would have been bourn by AIG’s counterparties had the government not intervened and the sizable counterparty exposure that your firm continues to retain with AIG. For these reasons, it is clear to us that we have a common objective in ensuring the firm’s long-term viability. With these points in mind, we would propose that you make us a compelling offer to unwind all your outstanding CDS contracts with AIG referencing ABS CDOs in exchange for the purchase of the underlying CDOs (where the assets are available) at a percentage of the notional amount for the CDS. Of course, we are open to other proposals you might have that would lead to a final resolution of this complex portfolio and therefore satisfy our common objectives.
This presentation outlines a structure (“Maiden Lane III”) to resolve the liquidity drain at AIG from the multi-sector CDO book (primarily U.S. subprime mortgage exposure)
Goldman Sachs AIG/Maiden Lane III Documentation, 2008.
Previously Confidential BlackRock Solutions Maiden Lane III Counterparty Brief from November 5, 2008.
Maurice Raymond “Hank” Greenberg was born May 4, 1925 in New York City, the son of a Jewish candy store owner Jacob Greenberg. His father died when he was seven and his mother, Ada Rheingold, married a dairy farmer who lived in the Catskill mountains. Greenberg lied about his age in 1942, claiming he was seventeen, so that he could enlist in the Army. He later became an Army Ranger, landing on Omaha Beach on D-Day and participating in the liberation of Dachau in 1945. After the war, Mr. Greenberg received his undergraduate degree from the University of Miami Florida in 1948 and earned his L.L.B. from New York Law School in 1950.
Connections among board of directors and executive leadership of American International Group as of March 20, 2009.
This Report sets out the facts discovered by the Office of the New York State Attorney General (the “Office” or the “Attorney General”) in an investigation of breaches of fiduciary duties by Maurice R. Greenberg and the other executors of the estate of Mr. Cornelius Vander Starr (the “Estate”) who were also directors of The Starr Foundation (the “Foundation”). Mr. Starr was the founder of a group of insurance businesses that have become American International Group, Inc.
In the fall of 2008, the Federal Reserve and Treasury faced several key decisions about the future of AIG. After attempts to find private-sector financing failed, they chose to provide assistance to AIG rather than allow the company to file for bankruptcy. FRBNY officials believed that an AIG failure would pose considerable risk to the entire financial system and would have significantly intensified an already severe financial crisis. FRBNY was concerned about the effect of an AIG bankruptcy on key sectors of the market, such as retirement accounts and the credit markets. FRBNY adopted in substantial part the economic terms of a draft term sheet under consideration by a consortium of private banks, the terms of which included a very high interest rate.
Executive Compensation Practices
* AIG is focused on repaying the govemnment and the taxpayers, selling assets, and preserving the value of AIG’s diverse businesses.
* In recognition of AlG’s obligation to taxpayers, the company has taken several voluntary steps to restrict executive compensation beyond the requirements of TARP. These restrictions are far more onerous than measures taken by any other company that has received federal assistance
* In all, 2008 total compensation for the top 47 AIG executives is 56% lower than their 2007 total compensation.
Systemic risk is the risk imposed by inter-linkages and interdependencies in a system or market, which could potentially bankrupt or bring down the entire system or market if one player is eliminated, or a cluster of failures occurs at once. Systemic financial risk occurs when contingency plans that are developed individually to address selected risks are collectively incompatible. It is the quintessential “knee bone is connected to the thigh bone…” where every element that once appeared independent is connected with every other element.
This agreement, made as of the 25th day of November, 2008, by and among the Federal Reserve Bank of New York (“FRB-NY”), BlackRock Financial Management, Inc. (the “Manager”) and Maiden Lane III LLC (the “Borrower”), sets forth the terms under which the Manager shall provide investment management services to FRB-NY (the “Agreement”).
As of March 27, 2009, Treasury had disbursed $303.4 billion of the $700 billion in TARP funds. Most of the funds (about $199 billion) went to purchase preferred shares of 532 financial institutions under the Capital Purchase Program (CPP)—Treasury’s primary vehicle under TARP for stabilizing financial markets. Treasury has continued to take significant steps to address all of the recommendations from our December 2008 and January 2009 reports. In particular, Treasury has recently expanded the scope of the monthly CPP surveys of the largest institutions to include all institutions participating in the program, which is intended to provide Treasury with information necessary to begin to track the effectiveness of the program. Treasury also continued to make progress in several other areas, including requiring firms participating in certain new programs to show how assistance will expand lending. These requirements will better enable Treasury to determine what institutions plan to do with any capital infusions and to track the resulting lending activity of participating institutions on a regular basis. In addition, we specifically found that though Treasury is now receiving dividends from the investments it has made in CPP and certain other programs, it has not publicly reported these receipts, which totaled almost $2.9 billion through March 20, 2009. We recommended that Treasury could improve transparency pertaining to TARP program activities by reporting publicly the monies, such as dividends, paid to Treasury by TARP participants.