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American International Group, Inc. (AIG) ( ) is an Americanmarker insurance corporation. Its corporate headquarters are located in the American International Buildingmarker in New York Citymarker. The Britishmarker headquarters office is on Fenchurch Streetmarker in Londonmarker; continental Europe operations are based in La Défensemarker, Parismarker, and its Asian headquarters office is in Hong Kongmarker. According to the 2008 Forbes Global 2000 list, AIG was once the 18th-largest public company in the world. It was listed on the Dow Jones Industrial Average from April 8, 2004 to September 22, 2008.

AIG suffered from a liquidity crisis when its credit ratings were downgraded below "AA" levels in September 2008. The United States Federal Reserve Bank on September 16, 2008, created an $85 billion credit facility to enable the company to meet increased collateral obligations consequent to the credit rating downgrade, in exchange for the issuance of a stock warrant to the Federal Reserve Bank for 79.9% of the equity of AIG. The Federal Reserve Bank and the United States Treasury by May 2009 had increased the potential financial support to AIG, with the support of an investment of as much as $70 billion, a $60 billion credit line and $52.5 billion to buy mortgage-based assets owned or guaranteed by AIG, increasing the total amount available to as much as $182.5 billion.AIG subsequently sold a number of its subsidiaries and other assets to pay down loans received, and continues to seek buyers of its assets. In March 2009, AIG faced public outrage and media and political backlash for its retention payments of $165 million. During this time period, many AIG employees endured hate mail and death threats.


The American International Building in lower Manhattan
AIG history dates back to 1919, when Cornelius Vander Starr established an insurance agency in Shanghai, China. Starr was the first Westerner in Shanghai to sell insurance to the Chinese, which he continued to do until AIG left China in early 1949—as Mao Zedong led the advance of the Communist People's Liberation Army on Shanghai. Starr then moved the company headquarters to its current home in New York City. The company went on to expand, often through subsidiaries, into other markets, including other parts of Asia, Latin America, Europe, and the Middle East.

In 1962, Starr gave management of the company's lagging U.S. holdings to Maurice R. "Hank" Greenberg, who shifted its focus from personal insurance to high-margin corporate coverage. Greenberg focused on selling insurance through independent brokers rather than agents to eliminate agent salaries. Using brokers, AIG could price insurance according to its potential return even if it suffered decreased sales of certain products for great lengths of time with very little extra expense. In 1968, Starr named Greenberg his successor. The company went public in 1969.

Beginning in 2005, AIG became embroiled in a series of fraud investigations conducted by the Securities and Exchange Commission, U.S.marker Justice Departmentmarker, and New York State Attorney General's Office. Greenberg was ousted amid an accounting scandal in February 2005; he is still fighting civil charges being pursued by New York state. The New York Attorney General's investigation led to a $1.6 billion fine for AIG and criminal charges for some of its executives. Greenberg was succeeded as CEO by Martin J. Sullivan, who had begun his career at AIG as a clerk in its London office in 1970.

On June 15, 2008, after disclosure of financial losses and subsequent to a falling stock price, Sullivan resigned and was replaced by Robert B. Willumstad, Chairman of the AIG Board of Directors since 2006. Willumstad was forced by the US government to step down and was replaced by Edward M. Liddy on September 17, 2008.


In the United Statesmarker, AIG is the largest underwriter of commercial and industrial insurance, and AIG acquired American General Life Insurance in August 2001.

Auto insurance

AIG sold auto insurance policies through its subsidiary unit, AIG Direct (aka The policies they offered included insurance for private automobiles, motorcycles, recreational vehicles and commercial vehicles.

AIG purchased the remaining 39% that it did not own of online auto insurance specialist 21st Century Insurance in 2007 for $749 million.With the failure of the parent company and the continuing recession in late 2008, AIG rebranded its insurance unit to 21st Century Insurance. In April 2009 it was announced that AIG was selling the 21st Century Insurance subsidiary to Farmers Insurance Group for $1.9 billion.


Financial crisis

Chronology of September 2008 liquidity crisis

On September 16, 2008, AIG suffered a liquidity crisis following the downgrade of its credit rating. Industry practice permits firms with the highest credit ratings to enter swap without depositing collateral with its trading counter-parties. When its credit rating was downgraded, the company was required to post additional collateral with its trading counter-parties, and this led to an AIG liquidity crisis. AIG's London unit sold credit protection in the form of credit default swaps (CDSs) on collateralized debt obligations (CDOs) that had by that time declined in value.The United States Federal Reserve Bank announced the creation of a secured credit facility of up to US$85 billion, to prevent the company's collapse by enabling AIG to meet its obligations to deliver additional collateral to its credit default swap trading partners. The credit facility provided a structure to loan as much as US$85 billion, secured by the stock in AIG-owned subsidiaries, in exchange for warrants for a 79.9% equity stake, and the right to suspend dividends to previously issued common and preferred stock.AIG announced the same day that its board accepted the terms of the Federal Reserve Bank's rescue package and secured credit facility.This was the largest government bailout of a private company in U.S. history, though smaller than the bailout of Fannie Mae and Freddie Mac a week earlier.

AIG's share prices had fallen over 95% to just $1.25 by September 16, 2008, from a 52-week high of $70.13. The company reported over $13.2 billion in losses in the first six months of the year.

The AIG Financial Products division headed by Joseph Cassano, in London, had entered into credit default swaps to insure $441 billion worth of securities originally rated AAA. Of those securities, $57.8 billion were structured debt securities backed by subprime loans.CNN named Cassano as one of the "Ten Most Wanted: Culprits" of the 2008 financial collapse in the United States.

As Lehman Brothers (the largest bankruptcy in U.S. history at that time) suffered a catastrophic decline in share price, investors began comparing the types of securities held by AIG and Lehman, and found that AIG had valued its Alt-A and sub-prime mortgage-backed securities at 1.7 to 2 times the values used by Lehman which weakened investors' confidence in AIG.On September 14, 2008, AIG announced it was considering selling its aircraft leasing division, International Lease Finance Corporation, to raise cash.The Federal Reserve hired Morgan Stanley to determine if there are systemic risks to a financial failure of AIG, and asked private entities to supply short-term bridge loans to the company. In the meantime, New Yorkmarker regulators allowed AIG to borrow $20 billion from its subsidiaries.

At the stock marketmarker's opening on September 16, 2008, AIG's stock dropped 60 percent.

The Federal Reserve continued to meet that day with major Wall Street investment firms, hoping to broker a deal for a non-governmental $75 billion line of credit to the company.

Rating agencies Moody's and Standard and Poor downgraded AIG's credit ratings on concerns over likley continuing losses on mortgage-backed securities. The credit rating downgrade forced the company to deliver collateral of over $10 billion to certain creditors and CDS counter-parties.The New York Times later reported that talks on Wall Street had broken down and AIG may file for bankruptcy protection on Wednesday, September 17.

Just before the bailout by the US Federal Reserve, AIG former CEO Maurice (Hank) Greenberg sent an impassioned letter to AIG CEO Robert B. Willumstad offering his assistance in any way possible, ccing the Board of Directors. His offer was rebuffed.Many blame the financial problems on the legal problems AIG began having as a result of a number of government investigations alleging fraud and other inproprieties which were approved by the office of its then chairman, Maurice Greenberg. These problems placed such a focus on AIG's activities that it created a level of required transparency and fear of getting caught, which many believe forced the company to be less active and willing to cheat its way out of these problems. A manner of doing business it learned with its core activity of denying legitimate insurance claims and then pressuring its insureds, their witnesses and anyone else coming to their support while trying to intimidate judges and insurance commissioners. So who began all this? In May 2001 an insurance claimant and shareholder, Cesar Balbin stepped into the annual shareholders meetings. For the first time ever in the company's history, AIG was publicly accused of criminal and civil racketeering activities including: extortion, blackmale, claims fraud, theft of company equity: it took with it the chairman, billions of dollars and led to a greater transparency and fear that possibly contributed to inaction by many at AIG to participate in its typically less that legal and proper activities required to keep the company afloat.

Federal Reserve bailout

On the evening of September 16, 2008, the Federal Reserve Bank's Board of Governors announced that the Federal Reserve Bank of New Yorkmarker had been authorized to create a 24-month credit-liquidity facility from which AIG could draw up to $85 billion. The loan was collateralized by the assets of AIG, including its non-regulated subsidiaries and the stock of "substantially all" of its regulated subsidiaries, and with an interest rate of 850 basis points over the three-month London Interbank Offered Rate (LIBOR) (i.e., LIBOR plus 8.5%). In exchange for the credit facility, the U.S. government received warrants for a 79.9 percent equity stake in AIG, with the right to suspend the payment of dividends to AIG common and preferred shareholders.The credit facility was created under the auspices of Section 13(3) of the Federal Reserve Act.AIG's board of directors announced approval of the loan transaction in a press release the same day. The announcement did not comment on the issuance of a warrant for 79.9% of AIG's equity, but the AIG 8-K filing of September 18, 2008, reporting the transaction to the Securities and Exchange Commission stated that a warrant for 79.9% of AIG shares had been issued to the Board of Governors of the Federal Reserve.AIG drew down US$ 28 billion of the credit-liquidity facility on September 17, 2008.On September 22, 2008, AIG was removed from the Dow Jones Industrial Average.An additional $37.8 billion credit facility was established in October. As of October 24, AIG had drawn a total of $90.3 billion from the emergency loan, of a total $122.8 billion.

Maurice Greenberg, former CEO of AIG, on September 17, 2008, characterized the bailout as a nationalization of AIG. He also stated that he was bewildered by the situation and was at a loss over how the entire situation got out of control as it did.On September 17, 2008, Federal Reserve Bank chair Ben Bernanke asked Treasury Secretary Henry Paulson join him, to call on members of Congress, to describe the need for a congressionally authorized bailout of the nation's banking system. Weeks later, Congress approved the Emergency Economic Stabilization Act of 2008.Bernanke said to Paulson on September 17:

Additional Bailouts of 2008

On October 9, 2008, the company borrowed an additional $37.8 billion via a second secured asset credit facility created by the Federal Reserve Bank of New York (FRBNY). From mid September till early November, AIG's credit-default spreads were steadily rising, implying the company was heading for default.On November 10, 2008, the U.S. Treasury announced it would purchase $40 billion in newly issued AIG senior preferred stock, under the authority of the Emergency Economic Stabilization Act's Troubled Asset Relief Program.The FRBNY announced that it would modify the September 16th secured credit facility; the Treasury investment would permit a reduction in its size from $85 billion to $60 billion, and that the FRBNY would extend the life of the facility from three to five years, and change the interest rate from 8.5% plus the three-month London interbank offered rate (LIBOR) for the total credit facility, to 3% plus LIBOR for funds drawn down, and 0.75% plus LIBOR for funds not drawn, and that AIG would create two off- balance-sheet Limited Liability Companies (LLC) to hold AIG assets: one will act as an AIG Residential Mortgage-Backed Securities Facility and the second to act as an AIG Collateralized Debt Obligations Facility.Federal officials said the $40 billion investment would ultimately permit the government to reduce the total exposure to AIG to $112 billion from $152 billion.On December 15, 2008, the Thomas More Law Center filed suit to challenge the Emergency Economic Stabilization Act of 2008, alleging that it unconstitutionally promotes Islamic law (Sharia) and religion. The lawsuit was filed because AIG provides Takaful Insurance Plans, which, according to the company, avoid investments and transactions that are"un-Islamic".

Counterparty Controversy

AIG was required to post additional collateral with many creditors and counter-parties, touching off controversy when over $100 billion was paid out to major global financial institutions that had previously received TARP money. While this money was legally owed to the banks by AIG (under agreements made via credit default swaps purchased from AIG by the institutions), a number of Congressmen and media members expressed outrage that taxpayer money was going to these banks through AIG.

Had AIG been allowed to fail in a controlled manner through bankruptcy, bondholders and derivative counterparties (major banks) would have suffered significant losses, limiting the amount of taxpayer funds directly used. Fed Chairman Ben Bernanke argued: "If a federal agency had [appropriate authority] on September 16 [2008], they could have been used to put AIG into conservatorship or receivership, unwind it slowly, protect policyholders, and impose haircuts on creditors and counterparties as appropriate. That outcome would have been far preferable to the situation we find ourselves in now." The "situation" to which he is referring is that the claims of bondholders and counterparties were paid at 100 cents on the dollar by taxpayers, without giving taxpayers the rights to the future profits of these institutions. In other words, the benefits went to the banks while the taxpayers suffered the costs.

Post-bailout expenditures

The following week (of September bailout), AIG employees and distributors participated in a California retreat which cost $444,000 and featured spa treatments, banquets, and golf outings.

It was reported that the trip was a reward for top-performing life-insurance agents planned before the bailout.Less than 24 hours after the news of the party was first reported by the media, it was reported that the Federal Reserve had agreed to give AIG an additional loan of up to $37.8 billion.AP reported on October 17 that AIG executives spent $86,000 on a previously scheduled English hunting trip. News of the lavish spending came just days after AIG received an additional $37.8 billion loan from the Federal Reserve, on top of a previous $85 billion emergency loan granted the month before. Regarding the hunting trip, the company responded, "We regret that this event was not canceled."An October 30, 2008 article from CNBCmarker reported that AIG had already drawn upon $90 billion of the $123 billion allocated for loans.On November 10, 2008, just a few days before renegotiating another bailout with the US Government for $40 billion, ABC News reported that AIG spent $343,000 on a trip to a lavish resort in Phoenixmarker, Arizonamarker.

Settlement of credit default swaps

On October 22, 2008, those creditors of Lehman Brothers who bought credit default swaps to hedge them against Lehman bankruptcy settled those accounts. The net payments were $5.2 billioneven though initial estimates of the amount of the settlement were between $100 billion and $400 billion.

On March 15, 2009, under mounting pressure from Congress and after consultation with the Federal Reserve, AIG disclosed a list of major recipients of collateral postings and payments under credit default swaps, guaranteed investment plans, and securities lending agreements.During December 2008, AIG paid $18.7 billion to various financial institutions, including Goldman Sachs and Société Générale to retire obligations related to credit default swaps (CDS). As much as $53.5 billion related to swap payouts are part of the bailout.

Sales of assets

AIG since September 2008 has marketed its assets to pay off its government loans. A global decline in the valuation of insurance businesses, and the weakening financial condition of potential bidders, has challenged its efforts. If the U.S. government decides to continue to protect the company from falling into bankruptcy, it may have to take the assets itself in exchange for the loans, or offer further direct financial support.

As of Sept 6th, 2009, the Wall Street Journal has reported that Pacific Century Group has agreed to pay US$500M for a part of American International Group Inc.'s asset-management business, and that they also expect to pay an additional $200 million to AIG in carried interest and other payments linked to future performance of the business.

Record losses

On March 2, 2009, AIG reported a fourth quarter loss of $61.7bn (£43bn) and revenue of -$23.7bn (-£16.2bn) for the final three months of 2008. This was the largest quarterly loss in corporate history at that time.The announcement of the loss had an impact on morning trading in Europe and Asia, with the FTSE100, DAX and Nikkei all suffering sharp falls. In the US the Dow Jones Industrial Average fell to below 7000 points, a twelve-year low. The news of the loss came the day after the U.S.marker Treasury Departmentmarker had confirmed that AIG was to get an additional $30 billion in aid, on top of the $150 billion it has already received.The Treasury Department suggested that the potential losses to the US and global economy would be 'extremely high' if it were to collapse and has suggested that if in future there is no improvement, it will invest more money into the company, as it is unwilling to allow it to fail.The firm's position as not just a domestic insurer, but also one for small businesses and many listed firms, has prompted US officials to suggest its demise could be 'disastrous' and the Federal Reserve said that AIG posed a 'systemic risk' to the global economy.The fourth quarter result meant the company made a $99.29 billion loss for the whole of 2008,with five consecutive quarters of losses costing the company well over $100 billion.In a testimony before the Senate Budget Committee on March 3, 2009, the Federal Reserve Chairman Ben Bernanke stated that "AIG exploited a huge gap in the regulatory system,” ... and "to nobody’s surprise, made irresponsible bets and took huge losses".

2009 employee bonus payments

In March 2009, AIG announced that they were paying out $165 million in executive bonuses. Total bonuses for the financial unit could reach $450 million and bonuses for the entire company could reach $1.2 billion.President Barack Obama, who voted for the AIG bailout as a Senatorresponded to the planned payments by saying "[I]t’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?" and "In the last six months, AIG has received substantial sums from the U.S. Treasury. I’ve asked Secretary Geithner to use that leverage and pursue every legal avenue to block these bonuses and make the American taxpayers whole."
Politicians on both sides of the Congressional aisle reacted with outrage to the planned bailouts. Senator Chuck Grassley (R-Iowa) said "I would suggest the first thing that would make me feel a little bit better toward them if they'd follow the Japanese example and come before the American people and take that deep bow and say, I'm sorry, and then either do one of two things: resign or go commit suicide."Senator Chuck Schumer (D-New York) accused AIG of "Alice in Wonderland business practices" and said "It boggles the mind." He has threatened to tax the bonuses at up to 100%.Senator Richard Shelby (R-Alabama) said "These people brought this on themselves. Now you're rewarding failure. A lot of these people should be fired, not awarded bonuses. This is horrible. It's outrageous." Senator Mitch McConnell (R-Kentucky) echoed his comments, saying "This is an outrage."Senator Jon Tester (D-Montana) said "This is ridiculous." and AIG executives "need to understand that the only reason they even have a job is because of the taxpayers."Senator Dick Durbin (D-Illinois) said "I've had it." and "The fact that they continue to do it while we pour in billions of dollars is undefensible."
Representative Barney Frank (D-Massachusetts), Chairman of the House Financial Services Committee, said paying these bonuses would be "rewarding incompetence" and "These people may have a right to their bonuses. They don't have a right to their jobs forever."
Representative Mark Kirk (R-Illinois) said "AIG should not be on welfare from Uncle Sam, and yet paying bonuses and transferring a considerable amount of taxpayer funds to entities overseas."Federal Reserve Chairman Ben Bernanke said "It makes me angry. I slammed the phone more than a few times on discussing AIG."Lawrence Summers, Director of the National Economic Council, said "The easy thing would be to just say, you know, ‘Off with their heads,’ and violate the contracts."Austan Goolsbee, of the Council of Economic Advisers said "I don't know why they would follow a policy that's really not sensible, is obviously going to ignite the ire of millions of people." and "You worry about that backlash."

Political commentators and journalists expressed an equally bipartisan outrage.

On March 24, 2009, The New York Times printed the resignation letter of Jake DeSantis, executive vice president of AIG’s financial products unit, to Edward M. Liddy, the chief executive of AIG. DeSantis stated he had nothing to do with the credit default swaps, he lost much of his life savings in the form of deferred compensation invested in the capital of AIG Financial Products; he had agreed to work for an annual salary of $1 out of a sense of duty, that he was assured many times the bonuses would be paid in March 2009, and that he believed he and others were let down by Liddy's lack of support. He also stated he was going to donate his bonus to those suffering from the global economic downturn.

It was reported that Senator Christopher Dodd (D-Con) (who first denied, then admitted to amending the legislation to allow the AIG bonuses), received $160,000 from employees of AIG.A memo issued in 2006 by Joseph Cassano, AIG Financial Products chief executive, urged AIG employees to donate to Dodd, saying that as "next in line to become chairman of the Senate Banking, Housing, and Urban Affairs Committe... Senator Dodd will now have the opportunity to set the committee's agenda on issues critical to the financial services industry."

Manchester United Sponsorship

AIG is the principal sponsor of Englishmarker football giants Manchester United, and as part of the sponsorship deal, their logo is displayed on the front of the club's shirts and a plethora of other merchandise. The AIG deal was announced by Manchester United chief executive David Gill on 6 April 2006, for a British shirt sponsorship record £56.5 million, to be paid over four years (£14.1 million a year). The deal became the most valuable sponsorship deal in the world in September 2006, after the renegotiation and subsequent degrading of the £15 million-a-year deal Italianmarker giants Juventus had with oil firm Tamoil. During AIG's sponsorship, Manchester United enjoyed one of its most successful periods in history, winning the Premier League three consecutive years, the Football League Cup, the UEFA Champions League, and the FIFA Club World Cup.

On 21 January 2009, it was announced that AIG would not be renewing their sponsorship of the club at the end of the deal in May 2010. It is not clear, however, whether or not AIG's agreement to run MU Finance will continue. American reinsurance company Aon Corporation, was named the club's new principal sponsor on 3 June 2009, with their sponsorship of the club taking effect from the beginning of the 2010–11 season. The terms of the deal were not revealed, but it has been reported to be worth approximately £80 million over four years, which would make it the biggest sponsorship deal in football history.


In November 2004, AIG reached US$126 million settlement with the U.S. Securities and Exchange Commission and the Justice Departmentmarker partly resolving a number of regulatory matters, but the company still must cooperate with investigators continuing to probe the sale of a non-traditional insurance product.

On June 11, 2008, three stockholders, collectively owning 4% of the outstanding stock of AIG, delivered a letter to the Board of Directors of AIG seeking to oust CEO Martin Sullivan and make certain other management and Board of Directors changes. This letter was the latest volley in what the Wall Street Journal deemed a "public spat" between the Company's Board and management, on the one hand, and its key stockholders, and former CEO Maurice "Hank" Greenberg on the other hand.

Accounting fraud claims

On October 14, 2004 the New Yorkmarker State Office of Attorney General Eliot Spitzer announced that it had commenced a civil action against Marsh & McLennan Companies for steering clients to preferred insurers with whom the company maintained lucrative payoff agreements, and for soliciting rigged bids for insurance contracts from the insurers. The Attorney General announced in a release that two AIG executives pleaded guilty to criminal charges in connection with this illegal course of conduct. In early May 2005, AIG restated its financial position and issued a reduction in book value of USD $2.7 billion, a 3.3 percent reduction in net worth.

On February 9, 2006, AIG and the New York State Attorney General's office agreed to a settlement in which AIG would pay a fine of $1.6 billion.

Corporate governance

Board of directors

See also


  3. The AIG Death Threats. Retrieved 2009-September-15.
  4. AIG Won't Release Names Of Executives, Citing Death Threats. Retrieved 2009-September-15.
  5. Threats to AIG: "We Will Get Your Children". Retrieved 2009-September-15.
  6. MSNBC
  7. Reuters
  8. Yahoo
  10. United States Federal Reserve Board of Governors, Press release: Federal Reserve Board, met with full support of the Treasury Department, authorizes the Federal Reserve Bank of New York to lend up to $85 billion to the American International Group (AIG), September 16, 2008
  11. Clobbered: Dow Plummets 449 on Credit Fears Fox Business News
  12. (Graphic comparing size of government credit facilities or asset guarantees)
  13. Culprits of the Collapse - Joe Cassano
  14. Federal Reserve Act: Section 13. Powers of Federal Reserve Banks Federal Reserve Board of Governors. Retrieved September 17, 2008.
  15. FORM 8-K Current Report, American International Group (September 18, 2008). EDGAR United States Securities and Exchange Commission. Retrieved September 20, 2008.
  16. Mark Ruquet, “Greenberg Pans AIG “Nationalization”, National Underwriter Life & Health, September 18, 2008
  17. Kevin J. Murray v. Henry M. Paulson, filed 12/15/08, p. 9
  18. Frequently Asked Questions regarding AIG Takaful
  19. Bloomberg - Senators Dodd & Shelby Demand Information
  20. Bernanke-AIG Testimony
  21. Fed grants AIG $37.8 billion loan, International Herald Tribune, October 8, 2008
  22. AIG Already Running Through Government Loans, CNBC, October 30, 2008
  23. Another AIG Resort "Junket": Top Execs Caught on Tape , ABC News, November 10, 2008
  24. [1]
  25. [2]
  26. AIG - Related Resources
  27. AIG CDS Payouts and Retirements
  28. Wall Street Journal, "Li Is Back In Game With AIG Purchase"
  30. U.S. Senate vote on Emergency Economic Stabilization Act of 2008
  38. a
  49. Jake DeSantis, Dear A.I.G., I Quit! New York Times, March 25, 2009

References and further reading

External links

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