Tag Archive for Restricted FR

Federal Reserve Script for AIG Counterparty Discussions

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.