The SEC and Justice Department will go ahead with investigating the insurance giant as to whether it overstated the value of derivatives partly linked to sub-prime mortgages, according to the Wall Street
Journal and their moles. The newspaper also suggested that a criminal inquiry could follow. Neither government agency would comment yet.
“This latest piece of unsettling news heightens our concern that the current management team may not be able to successfully navigate this storm,” said S&P. Regardless of the shoulder shrugging and flashes of innocent facial expressions, the stock market hates this sort of uncertainty and chances are the stock will drift for at least a while.
The Treasury Department came out with a statement that AIG represents a large risk to the government. They hold an 80% stake in the company. In addition, AIG is in the process of selling off its assets to pay off $182.5 billion in government bailouts and the result is that there is less and less of this company actually making any money. 
AIG is just the scapegoat and many other firms are also hiding these Swaps. The Commodity Modernization 'ACt of 2000 "barred regulation" of these instruments and therefore, it is not illegal, it is government stupidity.
How do you explain giving a bonus to anyone at AIG Edward Liddy. Where are these people going to go? Their resume says AIG. I know I would be pretty skeptical to hire them!
American International Group Inc., the insurer whose bonuses and perks are under fire from U.S. lawmakers, offered cash awards to another 38 executives in a retention program with payments of as much as $4 million.
The incentives range from $92,500 to $4 million for employees earning salaries between $160,000 and $1 million, Chief Executive Officer Edward Liddy said in a letter dated Dec. 5 to Representative Elijah Cummings. The New York-based insurer had previously disclosed that 130 managers would get the awards and that one executive would get $3 million.
The insurer said it will take up to $5 billion of losses on behalf of its dozen insurance units after their securities-lending accounts were hit with $13 billion worth of subprime-related writedowns.
Previously, AIG had committed to buy up to $500 million worth of such losses.
AIG will also add capital to some of the units, though they didn’t say how much.
Regulators in Texas commented they were aware of AIG’s practice of investing cash collateral from the securities-lending business but did
not know they were buying subprime-related assets, claiming the nature of the investments was kept off-balance sheet and hidden. Unfortunately, state regulatory filings show that AIG’s securities-lending unit used nearly two-thirds of its $78 billion in cash collateral to buy mortgage-backed securities.
Variable Domestic Brokerage Group earnings: AIG’s Domestic Brokerage Group has produced variable underwriting earnings over the past few years, as well as low stand-alone capitalization. These are caused by catastrophe losses and excessive negative reserve development, pointing to poor leadership positions in certain business segments.
Increased financial leverage: In order to provide capital to its subsidiaries in 2005 and fund its stock repurchase program, AIG has increased its financial leverage. Though the leverage remains at a moderate level, the holding company’s cash needs were financed mainly with additional debt for the last two years, thus increasing reliance on subsidiary dividends for the holding company.
Emerging governance and oversight issues: AIG possesses a large board, several of whom are AIG execs, creating a substantial insider group. There is no active executive among its independent directors, and AIG only created a separate nominating committee to ensure the independence of its outside directors in 2002. Several of the inside directors ran two private companies that had substantial business dealings with AIG, resulting in the current lawsuit against Maurice Greenberg for illicitly funneling money to gain large payoffs.
American International Group Inc. (AIG) will receive as much as $30 billion government aid after posting a $61.7 billion fourth-quarter loss, the largest loss ever by a public company.
American International Group Inc. (AIG) warned of a “catastrophic” collapse -worse than the demise last year of Lehman Brothers Holdings Inc. (OTC: LEMQ) - when it appealed to the Federal Reserve and Treasury for its fourth federal bailout last week, Bloomberg reported. AIG told regulators its collapse might cripple money-market funds, force European banks to raise capital, cause competing life insurers to fail, and wipe out the U.S. taxpayers’ stake in the firm.
In addition to receiving $30 billion in government capital, AIG will benefit because the U.S. Treasury Department will relax the terms on loans it provided the insurer last year. This marks the third time since last September that the government has had to rescue AIG, which the government has deemed a “systematically significant failing institution.”
The insurer, due to release its earnings statement next week, could report a third-quarter loss of nearly $60 billion, an unidentified source told CNBC. That would be the largest-ever quarterly loss for a corporation.
A restructuring could include even more government funds. It’s possible that the government will convert its preferred AIG shares, which pay a 10% dividend, into common stock, something U.S. officials are reportedly discussing with Citigroup Inc. (C).
“Paying a huge dividend on the preferred only makes you bleed slowly over time,” Robert Haines, an analyst at CreditSights Inc. in New York, told Bloomberg. “So this would help.”
The government acquired an 80% stake in AIG last year when it twice intervened to keep the company afloat. The government first stepped in with $85 billion in September. But authorities were forced to bailout AIG again in November after the company posted a $24.5 billion third-quarter loss.
The government restructured the terms of the original relief package by slashing the initial $85 billion loan to $60 billion. It also replaced a separate $37.8 billion loan to the insurance company with $52.5 billion in aid and made $40 billion of new capital from the U.S. Treasury Department’s $700 billion Troubled Asset Relief Program (TARP) available to purchase the AIG’s toxic assets.
“Counterparties around the world continue to have significant exposure to AIG, and market conditions continue to be fragile and sensitive to the potential disorderly failure of AIG,” the Fed said in November.
AIG serves businesses and individuals in more than 130 countries and jurisdictions. Its operations extend beyond providing life and retirement insurance, to financial services and asset management, and protection against terrorist attacks.
AIG has said it plans to sell the majority of its assets to pay the government back, but there aren’t many buyers at a time when credit is tight and companies are scrapping to conserve capital.
“The seller is in a rather perilous position,” Thomas Russo, a partner at Gardner, Russo, & Gardner, which manages $2 billion, told Reuters. “And buyers typically appreciate the amount of leverage they have.”
So far, AIG has struck agreements to sell more than $2.3 billion worth of assets, according to Bloomberg.