U.S. watchdog probes AIG post-bailout payments to banks
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The government’s bailout of American International Group last fall also was a bailout of major Wall Street banks that were owed money by the insurance giant, including for credit default swap contracts.
Now the chief watchdog of the federal financial rescue wants to know whether the payments AIG made were justified, or whether they could have been reduced via negotiation.
From Bloomberg News:
AIG’s payments to banks including Goldman Sachs Group Inc. after the insurer’s bailout are being probed by Neil Barofsky, special inspector general for the Troubled Asset Relief Program. Barofsky has opened an audit into whether there were attempts made by AIG or the government to reduce the payments, according to an April 3 letter he wrote to Rep. Elijah Cummings. The Maryland Democrat had requested the probe last month along with 26 other lawmakers. Lawmakers, frustrated with the cost of an AIG bailout that expanded three times, have asked why about $50 billion was paid after the rescue to banks that bought credit-default swaps from the firm. Legislators want to know if AIG offered less to retire the contracts and whether there was any review about banks’ ability to sustain losses on the derivatives. ‘To what extent did AIG pay counterparty claims at 100% of face value and was any attempt made to renegotiate and close out these claims with ‘haircuts?’’ Barofsky wrote. ‘Questions concerning whether AIG paid more than necessary to counterparties and whether Treasury adequately monitored such payments are clearly relevant.’
AIG on March 15 revealed which banks and other creditors were paid off last fall after the company, on the brink of failure, got an $85-billion loan from the Federal Reserve to make good on what it owed. Among the banks that received billions in payments were Goldman, Merrill Lynch & Co., Germany’s Deutsche Bank and France’s Societe Generale.
The size of the AIG bailout has since doubled, and taxpayers now own 80% of the company.
-- Tom Petruno