AIG reveals bailout beneficiaries

The names of the beneficiaries of the bailout money received by AIG was today revealed, split between those who were counterparties to the credit default swap issuance (after all AIG was in the insurance business) and securities lending.  Major US and European financial institutions were unsurprisingly the counterparties revealed today.  Goldman Sachs, Bank of America-Merrill Lynch, Deutsche Bank, France’s Societe Generale and Calyon each received more than a billion as counterparties to credit default swaps.

The memo released by AIG also mentioned the creation of Maiden Lane III with the Federal Reserve in order to buy the mortgage-backed securities from banks in order to cancel the CDS contracts, which they similarly owned.  From this line, SocGen received almost $7 billion while Goldman Sachs got $5.6bn.  The total amount paid by Maiden Lane III was $27.1bn.

There was another $12bn paid to municipalities, under ‘guaranteed investment agreements’, for holding their money until the cash, rasied from bond issuances, was needed. California and Virgina were receipients of at least a billion each.

Almost half of the $94bn that was paid out between September and December of last year were to counterparties in securities lending.  The way this worked was this: A.I.G. lent out debt securities to banks and brokerage houses.  Receiving money for the securities’ par value or more, the money was then used by AIG to invest in other bonds with the hopes of earning higher yield.  Unfortunately, the bonds the firm has chosen was mortgage-backed securities, which have now significantly lost value.  Now AIG had to scour for funds to pay back the firms which lent out money in exchange for the debt securities. European banks Barclays and Deutsche Bank were the biggest beneficiaries after getting $7.0bn and $6.4 bn, respectively.

See the whole memo below.


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