The Wall Street Journal
The Federal Reserve Bank of New York told American International Group Inc. not to disclose key details of their agreements to make big payouts to banks in the insurer's regulatory filings in late 2008, according to a set of email exchanges released Thursday.
AIG later amended its regulatory filings several times over the following months and provided the information after the Securities and Exchange Commission requested more disclosure. Congress also pressured the insurer to release the names of banks that were paid off in full on $62 billion in bets on soured mortgage securities. The biggest payouts went to French bank Société Générale and to Wall Street firm Goldman Sachs Group Inc., AIG finally said publicly in mid-March 2009.
The government's handling of the AIG bailout continues to draw scrutiny and has created political difficulty for Treasury Secretary Timothy Geithner, who was president of the New York Fed when it first bailed out AIG in September 2008. He played a key role in the regional Fed bank's controversial November 2008 decision to make U.S. and European banks whole on their mortgage gambles with AIG, according to a government audit last year.
AIG later amended its regulatory filings several times over the following months and provided the information after the Securities and Exchange Commission requested more disclosure. Congress also pressured the insurer to release the names of banks that were paid off in full on $62 billion in bets on soured mortgage securities. The biggest payouts went to French bank Société Générale and to Wall Street firm Goldman Sachs Group Inc., AIG finally said publicly in mid-March 2009.
The government's handling of the AIG bailout continues to draw scrutiny and has created political difficulty for Treasury Secretary Timothy Geithner, who was president of the New York Fed when it first bailed out AIG in September 2008. He played a key role in the regional Fed bank's controversial November 2008 decision to make U.S. and European banks whole on their mortgage gambles with AIG, according to a government audit last year.
Treasury spokeswoman Meg Reilly said what has been overshadowed is the fact that the government expects to be repaid in full, with interest, on the money it provided to buy the AIG-linked securities.
But a Treasury spokeswoman said Mr. Geithner wasn't involved in AIG's disclosure decisions, even though discussions about them took place in late November 2008, when he was selected as treasury secretary by President Obama. Mr. Geithner "played no role in these decisions and indeed, by Nov. 24, he was recused from working on issues involving specific companies, including AIG," the spokeswoman said.
"There was no effort to mislead the public," said Thomas Baxter, general counsel of the New York Fed, on Thursday. He said it was "appropriate" for the institution to comment on AIG's disclosures on transactions involving the New York Fed, "with the understanding that the final decision rested with AIG and its external securities counsel."
"Our focus was on ensuring accuracy and protecting the taxpayers' interests during a time of severe economic distress," Mr. Baxter said. Amid the financial crisis in late 2008, the Fed was reluctant to have AIG's trading partners identified because it feared such information would discourage other firms from doing business with the insurer and spark worries about the banks themselves.
An AIG spokesman declined to comment on the issue.
Copies of email exchanges from late November 2008 to March 2009 between lawyers representing AIG and the New York Fed were released by Rep. Darrell Issa (R., Calif.), ranking minority member of the House Committee on Oversight and Government Reform.
The emails show lawyers discussing what to disclose in AIG's December SEC filings about agreements the New York Fed and AIG's financial-products division struck to make banks whole on credit-default swap contracts they had purchased from AIG.
In a Nov. 25 email, Peter Bazos, an attorney at law firm Davis Polk & Wardwell, which represents the New York Fed, wrote that certain agreements "do not need to be filed." One agreement contained the names of banks that received payouts from AIG. A Davis Polk spokesman declined to comment.
In response, an AIG in-house lawyer, Kathleen Shannon, said the company and its law firm Sullivan & Cromwell "believe that the better practice and better disclosure in this complex area is to file the agreements." She also wrote that staff at the SEC "would not be particularly happy with a decision to withhold the documents at this time."
Subsequent email exchanges in December 2008 showed extensive editing that lawyers for the New York Fed made to an AIG draft filing and press release. When AIG released its 8-K filing on Dec 24, it made mention of a list of its derivative transactions, but a schedule supposed to contain them was left blank.
Six days later, on Dec 30, the SEC sent a letter to Edward Liddy, AIG's CEO at the time, requesting revisions to the filing and more information about the agreement, including the list of derivative transactions. In mid- January 2009, AIG amended its filing and submitted the list of deals to the SEC, but its public filings didn't include the list, saying that "confidential treatment has been requested for the omitted portions."
In early March, Federal Reserve vice chairman Donald Kohn told a congressional hearing he couldn't reveal the names of AIG's counterparties or how much was paid to each of them, saying that information "would undermine the stability of the company and could have serious knock-on effects to the rest of the financial markets and the government's efforts to stabilize them."
Days after the hearing, AIG released the names of its counterparties, listing 16 banks that had received a total of $62.1 billion in payments as part of agreements to tear up their derivative contracts with the insurer.
Mr. Geithner has become a convenient target for lawmakers angered by how top officials went about bailing out the financial system. At a series of increasingly contentious hearings on Capitol Hill, Mr. Geithner was taken to task for events and actions that occurred both during and after his time at the New York Fed, from issues such as bonuses paid to AIG executives and the failure to negotiate aggressively with the insurer's counterparties.
Treasury spokeswoman Meg Reilly said what has been overshadowed is the fact that the government expects to be repaid in full, with interest, on the money it provided to buy the AIG-linked securities.
"Somehow that fact that the government's loan is 'above water' gets lost in all the consternation," Ms. Reilly said. The outstanding loan balance stood at $18.6 billion at the end of December, while the fair market value of the securities portfolio was $22.6 billion, according to Treasury figures.
"There was no effort to mislead the public," said Thomas Baxter, general counsel of the New York Fed, on Thursday. He said it was "appropriate" for the institution to comment on AIG's disclosures on transactions involving the New York Fed, "with the understanding that the final decision rested with AIG and its external securities counsel."
"Our focus was on ensuring accuracy and protecting the taxpayers' interests during a time of severe economic distress," Mr. Baxter said. Amid the financial crisis in late 2008, the Fed was reluctant to have AIG's trading partners identified because it feared such information would discourage other firms from doing business with the insurer and spark worries about the banks themselves.
An AIG spokesman declined to comment on the issue.
Copies of email exchanges from late November 2008 to March 2009 between lawyers representing AIG and the New York Fed were released by Rep. Darrell Issa (R., Calif.), ranking minority member of the House Committee on Oversight and Government Reform.
The emails show lawyers discussing what to disclose in AIG's December SEC filings about agreements the New York Fed and AIG's financial-products division struck to make banks whole on credit-default swap contracts they had purchased from AIG.
In a Nov. 25 email, Peter Bazos, an attorney at law firm Davis Polk & Wardwell, which represents the New York Fed, wrote that certain agreements "do not need to be filed." One agreement contained the names of banks that received payouts from AIG. A Davis Polk spokesman declined to comment.
In response, an AIG in-house lawyer, Kathleen Shannon, said the company and its law firm Sullivan & Cromwell "believe that the better practice and better disclosure in this complex area is to file the agreements." She also wrote that staff at the SEC "would not be particularly happy with a decision to withhold the documents at this time."
Subsequent email exchanges in December 2008 showed extensive editing that lawyers for the New York Fed made to an AIG draft filing and press release. When AIG released its 8-K filing on Dec 24, it made mention of a list of its derivative transactions, but a schedule supposed to contain them was left blank.
Six days later, on Dec 30, the SEC sent a letter to Edward Liddy, AIG's CEO at the time, requesting revisions to the filing and more information about the agreement, including the list of derivative transactions. In mid- January 2009, AIG amended its filing and submitted the list of deals to the SEC, but its public filings didn't include the list, saying that "confidential treatment has been requested for the omitted portions."
In early March, Federal Reserve vice chairman Donald Kohn told a congressional hearing he couldn't reveal the names of AIG's counterparties or how much was paid to each of them, saying that information "would undermine the stability of the company and could have serious knock-on effects to the rest of the financial markets and the government's efforts to stabilize them."
Days after the hearing, AIG released the names of its counterparties, listing 16 banks that had received a total of $62.1 billion in payments as part of agreements to tear up their derivative contracts with the insurer.
Mr. Geithner has become a convenient target for lawmakers angered by how top officials went about bailing out the financial system. At a series of increasingly contentious hearings on Capitol Hill, Mr. Geithner was taken to task for events and actions that occurred both during and after his time at the New York Fed, from issues such as bonuses paid to AIG executives and the failure to negotiate aggressively with the insurer's counterparties.
Treasury spokeswoman Meg Reilly said what has been overshadowed is the fact that the government expects to be repaid in full, with interest, on the money it provided to buy the AIG-linked securities.
"Somehow that fact that the government's loan is 'above water' gets lost in all the consternation," Ms. Reilly said. The outstanding loan balance stood at $18.6 billion at the end of December, while the fair market value of the securities portfolio was $22.6 billion, according to Treasury figures.
