Liquidity Risk Management Case Study: American International Group (AIG): Timeline

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August 2007 – October 2007: Goldman Sachs asks AIG to post additional collateral in view of the falling market value of CDO assets. The insurer posted around $2 billion in collateral up to end-October 2007.

November 2007: AIG reports $352 million in unrealized losses on its CDS portfolio. It also reports that there are differences between AIG and counterparties valuations of CDO portfolio. AIG’s external auditor PricewaterhouseCoopers privately warns of material weaknesses in valuation methodology.

December 2007: AIG reports a further $1.15 billion in unrealized losses on its CDS portfolio.

11th February 2008: AIG discloses the concerns of the external auditor. It revises it unrealized loss figures upwards. It also reports that they have posted a total of $5.3 billion as collateral to date. CEO of AIG Financial Products, Joe Cassano, the unit responsible for the CDS portfolio resigns.

8th March 2008: AIG reports additional unrealized losses for the first quarter of $9.1 billion and total collateral posted of $9.7 billion.

20th March 2009: Raises $20 billion in private capital.

June- August 2008: Reports $5.6 billion unrealized losses for the second quarter of 2008 and total collateral posted of $16.5 billion. The CEO of AIG, Martin Sullivan, resigns and is replaced by Robert Willumstad.

9th September 2008: AIG’s share price falls sharply by 19% in response to investors’ fears regarding the potential collapse of Lehman Brothers and its systemic impact on AIG.

14th September 2008: Federal Reserve asks private entities to provide AIG with short term bridge loans to help meet liquidity demands. FDIC relaxes rules to allow AIG to borrow around $20 billion from its subsidiaries.

15th September 2008: Credit rating companies downgrade AIG’s credit rating below AA-levels because of its increasing inability to meet collateral demands as well as because of its growing residential mortgage-backed losses; Counterparties demand additional $14.5 billion in collateral; There are reports of major differences in the values of AIG’s subprime and Alt-A mortgages versus that of Lehman Brothers; AIG’s share price declines sharply by 61%.

16th September 2008: Federal Reserve Bank announces a bailout package for the insurer of an $85 billion credit-liquidity facility in exchange for warrants for a 79.9% equity share in the company; AIG’s board accepts terms of bailout.

17th September 2008: AIG CEO, Willumstad is forced to resign and is replaced by Edward Liddy.

Early October 2008: The Fed provides an additional $37.8 billion to AIG in order to help the insurer meet demands of cash from its clients withdrawing from its securities lending program.

10th November 2008: Government announces a third bailout. The terms and conditions of AIG’s original bailout loan are modified including lowering the interest rate and extending the term of the loan. In addition the government agrees to purchase $40 billion of senior preferred stock as well as creates two entities to purchase over $50 billion worth of RMBS.

September 2008 – February 2009: AIG has raised only $2.4 billion in divestures and asset sales and faces difficulty in finding strong potential buyers in light of falling asset values.

2nd March 2009: Following reported losses of $61.7 billion, the government enhances the rescue package to AIG, providing more favorable terms, purchasing an additional $30 million worth of preferred stock and putting two life insurance subsidiaries into separate trusts of which the Federal Reserve would purchase up to $26 billion in preferred stock.

Early August 2009: CEO Liddy is replaced by former MetLife CEO Robert Benmosche.

September 2010: Announces plan of an early repayment of the government loan in April – May 2011 by converting government’s share of preferred stock to common stock which would ultimately be sold to the public in the market, and through earnings and asset sales.

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