Who got paid? AIG names beneficiaries of its U.S. rescue

This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.

Insurance giant American International Group today finally revealed which banks and other institutions have been direct beneficiaries of the company’s federal bailout, as AIG paid what it owed under so-called credit default swaps and other insurance and investment agreements.

The company said it shelled out nearly $100 billion in the final few months of the year to satisfy some of the contracts it had outstanding. The beneficiaries included major foreign banks such as Germany’s Deutsche Bank and France’s Societe Generale, as well as U.S. titans Goldman Sachs Group and Merrill Lynch & Co.

U.S. municipalities, including some in California, also benefited as AIG settled up payments due on guaranteed investment agreements, under which states, cities and other municipalities temporarily park funds raised from bond sales.

‘The aid received by AIG helped avoid severe financial disruptions by providing liquidity to important financial institutions and municipalities,’ the company said in a statement.

AIG and the Federal Reserve have been pressured for months by some in Congress to reveal the names of the banks and other institutions that were paid off after the company, teetering on the brink of failure because of plummeting investments, got an $85 billion loan from the Fed in September. The federal rescue of the insurer has since doubled in size, and U.S. taxpayers now own 80% of the company.

In the face of a firestorm of protest this weekend over bonus payments it is making to key employees, AIG and the Fed relented on the disclosure of payments made to the company’s key trading partners after the rescue.

‘American International Group recognizes the importance of upholding a high degree of transparency with respect to the use of public funds,’ the company said. ‘As a result, after close consultation with the Federal Reserve, AIG is disclosing information identifying certain credit default swap counterparties, municipal counterparties and securities lending counterparties.’ . . .

‘Before disclosing this information, AIG consulted with the Federal Reserve about the potential public benefit of counterparty disclosure and the potential that such disclosure would cause competitive harm to AIG or its counterparties,’ the company said.

The potential for a collapse of AIG to bring down other financial giants worldwide, because of what the insurer owed other institutions, was the major justification the government cited for the massive bailout of the company. But until now, taxpayers haven’t been told which institutions ultimately were on the receiving end of the money funneled to AIG.

As revealed today, the payments the company made with federal dollars included $22.4 billion to initially back up credit default swaps, under which AIG had agreed to insure mortgage bonds and other securities against default. Banks and brokerages could have used the swaps either to insure bonds they owned or to speculate on defaults as financial markets crumbled.

AIG paid out additional billions later in the fall to cancel a batch of swaps entirely.

Societe Generale is listed as receiving a total of $11 billion related to credit default swap deals with AIG. Deutsche Bank got $5.4 billion. Goldman Sachs received $8.1 billion.

AIG also paid out $43.7 billion to banks and brokerages including Britain’s Barclays, Bank of America Corp. and Citigroup to satisfy contracts made by the firm’s securities-lending operation. That business involved lending securities held by AIG to banks and brokerages that wanted to ‘short’ shares, for example. The firms in turn put up a certain amount of cash with AIG as collateral for the loaned securities.

Because AIG invested that collateral in risky mortgage securities that subsequently plunged in value, it had to dig up more cash to repay the banks and brokerages when the loaned shares were returned.

Finally, AIG said it made $12.1 billion in payments to municipalities to honor guaranteed investment agreements. Among the states, municipalities in California received the most -- about $1 billion. Municipalities in Virginia, Hawaii and Ohio also received large sums.

For AIG’s listing of the various payments it made with federal money, go here.

-- Tom Petruno