Citigroup, JPMorgan Said to Have Sold AIG Protection to Goldman
The headquarters of American International Group Inc. in New York. Photographer: Daniel Acker/Bloomberg
Citigroup Inc. and JPMorgan Chase & Co. are among the banks that sold Goldman Sachs Group Inc. protection against a failure of insurer American International Group Inc., said two people with knowledge of the transactions.
Deutsche Bank AG, Credit Suisse Group AG and Morgan Stanley are also among banks that helped Goldman Sachs hedge against the risk of an AIG collapse, said the people, who declined to be identified because the contracts were private.
Goldman Sachs has turned over a list of counterparties to the Congressional Oversight Panel and Financial Crisis Inquiry Commission, which are reviewing the use of taxpayer funds in financial bailouts, according to people with knowledge of the matter. Had AIG been allowed to fail in 2008, instead of receiving a government rescue that swelled to $182.3 billion, the banks may have had to make payments to Goldman Sachs.
“AIG didn’t go down, and these banks didn’t have to pay out to Goldman for the protection they sold,” said Ed Grebeck, chief executive officer of Stamford, Connecticut-based debt- consulting firm Tempus Advisors and an instructor at New York University on derivatives.
Lucas van Praag, a spokesman for New York-based Goldman Sachs, declined to comment. Renee Calabro of Deutsche Bank, Credit Suisse’s Duncan King, Morgan Stanley’s Mark Lake, JPMorgan’s Brian Marchiony and Citigroup’s Danielle Romero- Apsilos had no comment.
Mortgage-Linked Securities
AIG’s rescue was designed to prevent a wider financial collapse. Banks including Goldman Sachs bought $62.1 billion in insurance on mortgage-linked securities from AIG. To protect itself against the possibility AIG would be unable to honor its obligations, Goldman Sachs bought credit-default swaps that would’ve paid out in the event of an AIG bankruptcy, Goldman Sachs Chief Financial Officer David Viniar has said.
When asked in March 2009 which firms sold Goldman Sachs the protection, Viniar said it was “really all of the large financial institutions” in and outside the U.S.
“That would be who you’d get protection from,” Grebeck said. “You’d go to big, highly rated counterparties like that.”
Goldman Sachs got $12.9 billion after AIG’s rescue as bailout funds helped the insurer honor its contracts with Wall Street firms. The bank’s hedges against AIG were a reason Goldman Sachs wouldn’t accept anything less than full payment on the guarantees it purchased from the insurer, Viniar said last year, without indentifying the firms.
“We want to know the identity of those parties, partly just to know where American taxpayer dollars went, but partly to assess Goldman’s claim,” said Elizabeth Warren, chairman of the Congressional Oversight Panel, in a Senate hearing this week. “We cannot evaluate the credibility of their claim that they had nothing at stake one way or the other in the AIG bailout.”
To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.
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