Systemically Significant Failing Institutions Program

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The Systemically Significant Failing Institutions Program (SSFI) is now called “AIG Investment Program” by Treasury. Treasury has made $45.3B in investments in AIG, in the form of non-cumulative preferred stock. The investments were made with an initial disbursement of $40B and then $5.3B of $29.8B that Treasury has also committed to AIG if and when it needs it. As of November 2009, AIG has missed four consecutive dividend payments (Treasury lists $0 in interest and dividends from the investment). At the end of FY 2009, Treasury estimated that the current value of its investment in AIG had a loss of $30.4 billion. AIG is also the recipient of several other vehicles of government aid (see non-TARP bailout programs).[1]

Wall Street Bailout Accounting
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SYSTEMICALLY SIGNIFICANT FAILING INSTITUTIONS PROGRAM (SSFI)
Balance Sheet
Disbursed*: $67.8B[2]
Current outstanding: $57.1B[3]
Public Funds
Maximum at-risk: $69.8B[4]
Current at-risk: $67.8B[5]

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

Funding agency and aid type

The funding agency was the Treasury Department.

Investment: preferred stock purchases.

Timeline:

  • Nov. 2008: Treasury purchases $40 billion in preferred stock (series D).[6]
  • Apr. 2009: Treasury exchanges the $40 billion in preferred stock (series D) for $41.6 billion in preferred stock (series E). Treasury also creates a credit facility, which AIG can draw up to $29.8 billion in exchange for preferred stock (series F). The facility has an effective interest rate of 10%, which is how much in dividends the series E and F stock pays.[7]
  • Nov. 2010: At month-end, AIG has drawn down $7.54 billion of the $29.8 billion available in the credit facility.[8]
  • Dec. 2010: AIG, the Federal Reserve Bank of New York and the U.S. Treasury enter an agreement to unwind the Fed's investment in AIG (not counting Maiden Lane II and III. The transaction had several parts:
    • AIG was able to repay the $47 billion owed through the Fed's AIG loans and investments by selling off two subsidiaries of AIG (AIA Group Limited and American Life Insurance Company) for about $26 billion and by borrowing $20.3 billion the remaining $22.3 billion of the remaining $29.8 billion credit facility and using that money to pay off the Fed.
    • $2 billion of the remaining $22.3 borrowed from Treasury will be reserved in a new credit facility for AIG to draw down when it needs.
    • AIG will designate more subsidiaries to sell off to eventually repay Treasury for the additional lending.
    • All of the remaining preferred stock that Treasury holds in AIG will be converted to common stock so that can be sold off to wind-down Treasury's investment.
    • Bottom line: The Federal Reserve's AIG loans and investments are paid off with $47 billion, AIG is $20.3 billion more in debt to Treasury (for a total of $67.8 billion: $47.8 billion in common stock and $20 billion in preferred stock to a subsidiary to be liquidated) with another $2 billion reserved for more borrowing, and Treasury's interest in AIG will now be common stock (representing 92.1% of AIG) that can be sold on the market.[9]
  • Feb. 2011: AIG delivers $2.2 billion from the sale of subsidiaries to the Treasury, reducing the outstanding amount to $65.6 billion ($18.1 in preferred debt and $47.5 billion in common stock).[10]
  • Mar. 2011: AIG sells off $6.9 billion of its MetLife interests in the special-purpose vehicle backed by Treasury's preferred stock interest, bringing the total outstanding down to $58.8 billion ($11.3 billion in preferred debt and $47.5 billion in common stock).[11]
  • May 2011: Treasury sells 200 million shares of its common stock for $5.8 billion, brining the total outstanding down to $53.1 billion ($11.3 billion in preferred debt and $41.8 billion in common stock. AIG and Treasury also voided the remaining $2 billion available for AIG to borrow.[12]

Who benefits

AIG counter-parties, debt holders and shareholders.

Repayment

AIG has had to use Treasury funds to cover losses and Treasury estimates its investments have lost $30.4B in value, so full repayment is unlikely.[13]

Notes

SIGTARP (Oct. 2009):[14]

“Treasury, through SSFI, had made and is committed to make further investments in one institution — American International Group, Inc. (“AIG”). This support was provided through two transactions — $40 billion for the purchase of preferred stock from AIG to repay debt owed to the Federal Reserve and approximately $29.8 billion for an equity capital facility that AIG can draw on as needed. As of September 30, 2009, AIG had drawn down $3.2 billion in equity from the capital facility.”

SIGTARP (Jan. 2010):[15]

“On November 2, 2008, Treasury made its initial investment in AIG with the purchase of $40 billion of Series D cumulative preferred AIG stock and common stock warrants. On April 17, 2009, AIG and Treasury signed a securities exchange agreement in which Treasury exchanged the Series D cumulative preferred stock for Series E non-cumulative preferred stock. In addition to the exchange agree- ment, on April 17, 2009, Treasury committed to fund an equity capital facility for AIG under which $29.8 billion may be drawn down in exchange for more preferred stock and additional common stock warrants. As of December 31, 2009, AIG had drawn down $5.3 billion from the equity capital facility.”

TARP’s Jan. 2010 report lists a call to Treasury as the source for the figure that $5.3B has been disbursed from the $29.8B in the second SSFI-AIG equity facility.

Articles and resources

Related SourceWatch articles

References

  1. SIGTARP Jan. 2010 report, p. 70-71.
  2. Amount is total common and preferred stock interest in AIG in the "Troubled Assets Relief Program (TARP) Monthly 105(a) Report – June 2011" from the U.S. Treasury, available at http://www.financialstability.gov/latest/reportsanddocs.html .
  3. Amount is total common and preferred stock interest in AIG in the "Troubled Assets Relief Program (TARP) Monthly 105(a) Report – June 2011" from the U.S. Treasury, available at http://www.financialstability.gov/latest/reportsanddocs.html .
  4. Amount included $2 billion in series G stock that was cancelled. See the "Troubled Assets Relief Program (TARP) Monthly 105(a) Report – June 2011" from the U.S. Treasury, available at http://www.financialstability.gov/latest/reportsanddocs.html .
  5. Amount is total common and preferred stock interest in AIG in the "Troubled Assets Relief Program (TARP) Monthly 105(a) Report – June 2011" from the U.S. Treasury, available at http://www.financialstability.gov/latest/reportsanddocs.html .
  6. "Troubled Asset Relief Program (TARP), Monthly 105(a) Report - November 2010," U.S. Treasury, December 10, 2010, p. 15-16. Available at http://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/105/Pages/default.aspx
  7. "Troubled Asset Relief Program (TARP), Monthly 105(a) Report - November 2010," U.S. Treasury, December 10, 2010, p. 15-16. Available at http://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/105/Pages/default.aspx
  8. "Troubled Asset Relief Program (TARP), Monthly 105(a) Report - November 2010," U.S. Treasury, December 10, 2010, p. 15-16. Available at http://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/105/Pages/default.aspx
  9. "Troubled Asset Relief Program (TARP), Monthly 105(a) Report - December 2010," U.S. Treasury, p. 11-12. Available at http://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/105/Pages/default.aspx
  10. "Troubled Asset Relief Program (TARP), Monthly 105(a) Report - February 2010," U.S. Treasury, p. 5-8. Available at http://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/105/Pages/default.aspx
  11. "Troubled Asset Relief Program (TARP), Monthly 105(a) Report - March 2010," U.S. Treasury, p. 3-8. Available at http://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/105/Pages/default.aspx
  12. "Troubled Asset Relief Program (TARP), Monthly 105(a) Report - May 2010," U.S. Treasury, p. 4 & 12. Available at http://www.treasury.gov/initiatives/financial-stability/briefing-room/reports/105/Pages/default.aspx
  13. SIGTARP Jan. 2010 report, p.70-71.
  14. SIGTARP Oct. 2009 report, p. 41.
  15. SIGTARP Jan. 2010 report, p. 70.

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