How aware was AIG that it had a major, company threatening derivative problem?
Very:
"Top officials at American International Group Inc. knew of potential problems in valuing derivative contracts long before these risky transactions caused the insurer’s shareholders severe pain, according to documents released by congressional investigators.
The disclosures come as prospects dimmed this past week for AIG’s efforts to quickly sell assets to repay its bulging debt to the government. The derivative-contract problems would have driven AIG into bankruptcy; in the past month, the government has made available to AIG nearly $123 billion in a rescue plan…
At congressional hearings Tuesday, a former internal AIG auditor wrote that he had early on raised concerns about being excluded from conversations about the valuation of the derivatives. The auditor, Joseph St. Denis, wrote in a letter to the House Committee on Oversight and Government Reform that in early September 2007, he learned that AIG’s financial-products unit had been asked for billions of dollars in collateral related to derivatives it had sold…
[November 2007] AIG said it would discuss the financial-products business at an investor conference on Dec. 5. An official at PricewaterhouseCoopers, AIG’s external auditor, said the firm told then-AIG Chief Executive Martin Sullivan and his chief financial officer, Steven Bensinger, on Nov. 29 that it "believed that AIG could have a material weakness" in its risk management, according to minutes of a January meeting of the AIG board’s audit committee, also released by Congress."
Fascinating stuff . . .
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Source:
Documents Show AIG Knew Of Problems With Valuations
LIAM PLEVEN and AMIR EFRATI
WSJ, OCTOBER 11, 2008
http://online.wsj.com/article/SB122368147261224877.html
See also:
Behind Insurer’s Crisis, Blind Eye to a Web of Risk
GRETCHEN MORGENSON
NYT, September 27, 2008
http://www.nytimes.com/2008/09/28/business/28melt.html
Insurance Industry Joins Banking Giants on the Hot Seat
MARY WILLIAMS WALSH
NYT, October 9, 2008
http://www.nytimes.com/2008/10/10/business/10place.html
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