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AIG loans and investments

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This article is part of the Real Economy Project. Take action at BanksterUSA.org.

The AIG loans and investments were a series of loans (and loans converted into investment stakes) made by the Federal Reserve Bank of New York to American International Group from 2008 to 2011. In 2011 the loans were repaid in full through a combination of sales of AIG subsidiaries and loans to AIG from the U.S. Treasury under its AIG Investment Program. It is no longer active.

Wall Street Bailout Accounting
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AIG LOANS AND INVESTMENTS
Balance Sheet
Disbursed*: $89.5 billion[1]
Current outstanding: $0[2]
Public Funds
Maximum at-risk: $122.5 billion[3]
Current at-risk: $0B[4]

* See the methodology and glossary for definitions of "disbursed," etc.

Funding agency and aid type

The funding agency was the Federal Reserve Bank of NY. The aid type was loans and investments.

Timeline:

  • Sept. 2008: Initial investment: FRBNY originally loaned AIG $42B (with maximum available credit line of $85B) to AIG.
  • Oct. 8, 2008: The Federal Reserve made an additional, separate $37.8B loan to AIG to finance investment-grade, fixed-income securities held by AIG and lent out by AIG's insurance company subsidiaries to third parties (bringing maximum at-risk to $122.7B - scored as $122.5 by SIGTARP). The loan was repaid and closed on Dec. 12, 2008.[5]
  • Oct. 29, 2008: The principle, fees and interest crested at $89.5 billion on Oct. 29, 2008 (including the $37.8B securities loan).[6]
  • Nov. 2008: FRBNY reduced the total available credit to $60B when Treasury loaned AIG $40 billion through the purchase of preferred stock through the AIG Investment Program.
  • Mar. 2009: FRBNY announced that it was making an additional $8.5B available, bringing the total available to $68.5B.[7]
  • Dec. 1, 2009: AIG and FRBNY announced a deal where $25B was taken off the debt (for a reduced principle – not including interest or fees – of $17B and a reduced credit line of $35B) in exchange for $25B in equity interest in two AIG subsidiaries, which were to be sold or put up for public offering.[8]
  • Nov. 10, 2010: AIG put up for sale 67% of the two AIG subsidiaries, AIA and American Life Insurance Company (ALICO), generating about $27.71B in cash.[9]
  • January 2010: AIG repays the full amount of FRBNY's loans (about $21 billion) and the interest in the special purpose vehicle (about $25 billion), for a total amount of $47 billion. The cash came from the sale of the two AIG subsidiaries and an additional $20 billion loan from the U.S. Treasury to AIG.[10]

Who benefits

AIG counter-parties, shareholders and debt holders.

Background

SIGTARP (Jan. 2010):

“As discussed in SIGTARP’s April 2009 Quarterly Report, FRBNY announced plans to modify its September 2008 Revolving Credit Facility (a Federal Reserve facility not involving TARP funds) established with AIG. On December 1, 2009, AIG announced that it closed two transactions with FRBNY in which FRBNY accepted $25 billion in preferred equity interests in two of AIG’s insurance special purpose vehicles (“SPVs”) as satisfaction for $25 billion owed by AIG under the Revolving Credit Facility. As a result of the transactions, AIG’s outstanding principal balance on the credit facility decreased from $42 billion to $17 billion, and its total borrowing capacity under the facility was reduced from $60 billion to $35 billion.”[11]

SIGTARP (July 2009):

“Credit to American International Group, Inc. — Total Potential Support: $122.5 Billion. The Federal Reserve Board’s Monetary Report to Congress states that “In early September, the condition of American International Group, Inc. (“AIG”), a large, complex financial institution, deteriorated rapidly. In view of the likely systemic implications and the potential for significant adverse effects on the economy of a disorderly failure of AIG, on September 16, the Federal Reserve Board, with the support of Treasury, authorized the Federal Reserve Bank of New York to lend up to $85 billion to the firm to assist it in meeting its obligations and to facilitate the orderly sale of some of its businesses. This facility had a 24-month term, with interest accruing on the outstanding balance at a rate of 3-month Libor plus 850 basis points, and was collateralized by all of the assets of AIG and its primary non-regulated subsidiaries… Subsequently, in November 2008, “Treasury, through TARP, purchased $40 billion of newly issued AIG preferred shares under the Systemically Significant Failing Institutions (“SSFI”) program. The $40 billion took some of the pressure off the first Federal Reserve line of credit, allowing the Federal Reserve to reduce from $85 billion to $60 billion the total amount available under the credit facility.” In addition to reducing the size of the line of credit, the Federal Reserve reduced the interest rate on the facility and extended the term of the facility from two years to five years. On March 2, 2009, the Federal Reserve announced authorization for new loans of up to an aggregate amount of approximately $8.5 billion to special purpose vehicles established by domestic life insurance subsidiaries of AIG that would be repaid by the net cash flows from designated blocks of life insurance policies held by the parent insurance companies.”[12]

SIGTARP (July 2009): [Quoting Fed]: "‘On October 8, the Federal Reserve announced an additional program under which it would lend up to $37.8 billion to finance investment-grade, fixed-income securities held by AIG. These securities had previously been lent by AIG’s insurance company subsidiaries to third parties.’ This facility was repaid in full and terminated on December 12, 2008.”[13]

AIG:

“The Federal Reserve Bank of New York (FRBNY) has provided AIG with a revolving credit facility of up to $60 billion for a five-year period. At December 1, 2009, amounts owed under the FRBNY Facility totalled $17.2 billion, including accrued compounding interest and fees.”[14]

Nomi Prins:

“The Fed provided $53 billion to the struggling AIG in various forms between 2008 and 2009.”[15]

Nomi Prins: “In October 2008, the Fed authorized the Federal Reserve Bank of New York to borrow up to $37.8 billion in securities from AIG.”[16]


Note: Not counted by ProPublica, which only tracks Treasury’s commitment.[17]

Notes

Articles and resources

Related SourceWatch articles

References

  1. Total loans made extended crested at $89.5 billion on Oct. 29, 2008. This included the $37.8B from the AIG Securities Lending Facility. See Federal Reserve Bank of St. Louis, "WAIG, Credit Extended to American International Group, Inc., Net". See explanation at Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), “Quarterly Report to Congress – July 21, 2009,” pps. 147-148.
  2. Loans and investments were tracked on the Federal Reserve Bank of St. Louis website, “WALICO, Preferred Interests in AIA Aurora LLC and ALICO Holdings LLC” and "WAIG, Credit Extended to American International Group, Inc., Net."
  3. Figure represents the $85 billion credit from the Fed, plus the $37.8 billion loaned in 2008 for investment-grade securities (see timeline). Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) rated the total at $122.5 billion maximum at-risk: SIGTARP, “Quarterly Report to Congress – July 21, 2009,” pps. 147-148.
  4. See outstanding amount.
  5. Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), “Quarterly Report to Congress – July 21, 2009,” pps. 147-148.
  6. Federal Reserve Bank of St. Louis, "WAIG, Credit Extended to American International Group, Inc., Net,".
  7. SIGTARP July 2009 report, p. 147-148.
  8. AIG press release, AIG CLOSES TWO TRANSACTIONS THAT REDUCE DEBT AIG OWES FEDERAL RESERVE BANK OF NEW YORK BY $25 BILLION; AIG PLACES AMERICAN LIFE INSURANCE COMPANY (ALICO), AMERICAN INTERNATIONAL ASSURANCE COMPANY, LTD. (AIA) IN SPECIAL PURPOSE VEHICLES,” December 1, 2009.
  9. Brady Dennis, "AIG raises $37 billion from Alico sale, IPO," Washington Post, Nov. 10, 2010.
  10. U.S. Treasury, Monthly 105(a) Report to Congress, January 2011, available at http://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/105/Pages/default.aspx .
  11. SIGTARP Jan. 2010 report, p. 71.
  12. SIGTARP July 2009 report, p. 147-148.
  13. SIGTARP July 2009 report, p. 147-148. Same info, via Nomi Prins source: Board of Governors of the Federal Reserve System, “Board Authorizes Federal Reserve Bank of New York to Borrow Securities From Certain Regulated U.S. Insurance Subsidiaries of AIG”, press release, October 8, 2008; Board of Governors of the Federal Reserve System, “Appendix: Federal Reserve Initiatives to Address Financial Strains”, February 24, 2009.
  14. AIG press release, AIG CLOSES TWO TRANSACTIONS THAT REDUCE DEBT AIG OWES FEDERAL RESERVE BANK OF NEW YORK BY $25 BILLION; AIG PLACES AMERICAN LIFE INSURANCE COMPANY (ALICO), AMERICAN INTERNATIONAL ASSURANCE COMPANY, LTD. (AIA) IN SPECIAL PURPOSE VEHICLES,” December 1, 2009.
  15. Prins’ Mother Jones analysis. Dec. 21, 2009. http://motherjones.com/politics/2009/12/behind-real-size-bailout
  16. Prins’ Mother Jones analysis. Dec. 21, 2009. http://motherjones.com/politics/2009/12/behind-real-size-bailout
  17. See ProPublica analysis; http://bailout.propublica.org/entities/8-aig and http://bailout.propublica.org/programs/2-systemically-significant-failing-institutions

External resources

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