Secret AIG Filing May Have Revealed Banks With Worst Securities Deals

By | January 13, 2010

Information about the American International Group bailout that regulators agreed to keep secret may reveal which banks held some of the worst performing mortgage-related securities at the time of the rescue.

Reuters reported Monday that the Securities and Exchange Commission approved a request last May by AIG to keep confidential some portions of a year-old regulatory filing that provided details about the funneling of tens of billions of federal bailout dollars to banks such as Societe Generale, Goldman Sachs Group Inc., Deutsche Bank AG and Merrill Lynch, now a unit of Bank of America Corp.

The SEC’s order granting confidential treatment to the redacted portion of the filing, known as Schedule A – List of Derivative Transactions, lasts until Nov. 25, 2018.

A close review of the non-redacted portions of the Schedule A exhibit, which the giant insurer filed with the SEC on March 16, reveals the regulatory agency permitted the giant insurer to keep secret any identifying information about the securities a group of 16 big U.S. and European banks sold to Maiden Lane III, an entity set-up by the Federal Reserve of New York in November 2008 as part of the AIG bailout.

The NY Fed established Maiden Lane III to retire the credit default swaps and insurance like derivative product AIG had sold to the banks to guard against a decline in value on those mortgage-related securities.

The redacted information includes things such as the CUSIP, or trading ID number, for each security; the name of each security and its face value. Also redacted was the distressed market price, or “negative mark to market” value, for each security sold to Maiden Lane III.


Derivatives consultant Janet Tavakoli said the secrecy made it difficult to determine which banks held the worst performing securities, as well as the identity of the banks that arranged and marketed those securities.

“They didn’t want you to know which deals had soured the fastest,” said Tavakoli, president of Tavakoli Structured Finance and a vocal critic of the AIG bailout. “The reason they didn’t want to release these details is because it would have shown that some securities suffered only moderate discounts, while others were worth much, much less. And that could have prompted an investigation into the deals that performed the worst.”

An AIG spokesman was not immediately available for comment.

The bailout of AIG has been assailed on Capitol Hill and elsewhere for funneling tens of billions of dollars to Wall Street banks without forcing any to incur losses on them.

The House Committee on Oversight and Government Reform is gearing up to hold a new round of hearings on the AIG bailout following the recent release of emails that detail discussions between the New York Fed and AIG over how much information to disclose to the public in the Schedule A filing.

U.S. Rep. Edolphus Towns, the committee’s chairman, said Tuesday he subpoenaed the New York Fed for documents on AIG’s counterparties.

Separately, Republican Sen. Jim Bunning of Kentucky called on regulators to investigate whether laws were violated when the New York Fed urged AIG to limit discussions about the payments to banks.

To date, all AIG has reported is the names of the 16 banks that sold ailing collateralized debt obligations to Maiden Lane III and the total dollars each bank received for those mortgage-related securities.

The insurer requested confidential treatment for the redacted portions of the document last January. The SEC officially approved AIG’s request on May 22, but provisionally granted the confidential treatment at the time the insurer requested it.

In January 2009, the SEC rejected a Freedom of Information Act request seeking access to the entire filing. The SEC denied access to the filing because AIG’s application for confidential treatment was pending.

(Reporting by Matthew Goldstein; editing by Andre Grenon)

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