AIG filing casts doubt on "limited exposure" claim

Fri Jan 29, 2010 4:16pm EST
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By Matthew Goldstein - Analysis

NEW YORK (Reuters) - A controversial regulatory filing detailing the federal bailout of American International Group Inc (AIG.N: Quote) could put the spotlight back on the former executive who headed the division most responsible for the insurer's near collapse in September 2008.

The five-page filing raises questions about some of Joseph Cassano's prior statements that AIG had "limited exposure" to the subprime housing market, even though AIG had written insurance contracts on some $62 billion of mortgage-related securities held by 16 big U.S. and European banks.

An unredacted version of the document, which AIG formally made public on Friday in a filing with the U.S. Securities and Exchange Commission, reveals that 14 percent of the 178 mortgage-related securities AIG had insured were originated by Wall Street banks after 2005.

The combined face value of the 25 securities AIG agreed to insure after 2005 was about $19 billion, or roughly 30 percent of the total face value of the entire portfolio of troubled mortgage-related securities the Federal Reserve of New York assumed in its bailout of AIG.

And of those 25 securities, 7 were tranches or pieces of two big collateralized debt obligations called Triaxx Prime 2006-1 and Triaxx Prime 2006-2, according to the filing. The CDOs, which went to market in the second-half of 2006, had a combined value of $5.8 billion.


The Triaxx CDOs, both highly-rated at the beginning, now carry junk bond ratings from Moody's Investors Service. AIG insured all, but a small sliver of the CDOs against the risk of default, according to the filing and a prospectus for one of the deals.

Federal prosecutors and the SEC are looking into whether Cassano and others at AIG misled investors about the insurer's exposure to the U.S. housing crisis as part of an ongoing investigation of the events that prompted the federal government to bail out the giant insurer.   Continued...