NEW YORK--Dec. 10, 2008--American International Group, Inc. (AIG) has issued the following
statement regarding an article that appeared today in The Wall Street
"A story in today's Wall Street Journal incorrectly reports that
AIG has a previously undisclosed obligation to counterparties of about
$10 billion. The Journal's story relates to AIG Financial
Products' multi-sector credit default swap portfolio. Included within
that $71.6 billion portfolio (notional amount as of September 30) is
approximately $9.8 billion of swaps that were sold as credit protection
on "synthetic" securities. The swaps on these synthetic securities are
also referred to as "cash settlement" or "Pay As You Go" (PAUG) swaps
because they are settled in cash as and when losses are taken.
The majority of the multi-sector CDS swaps were written as "physical
settlement" swaps, where AIG is required to physically buy the
underlying collateralized debt obligation (CDO) bond in the event of a
CDO credit event.
The $9.8 billion notional amount does not represent a loss to AIG or a
debt it owes to counterparties. It represents the notional value of the
maximum potential cash settlement portion of the multi-sector portfolio.
Cash settlement swaps have lower liquidity risk because they are PAUG. A
credit event on a physical settlement swap requires AIG to buy the total
underlying CDO tranche in an amount equal to AIG's full notional
exposure whereas a PAUG contract only obliges AIG to pay losses on that
tranche as and when they occur therefore reducing the cash impact.
AIG is addressing its exposure to its entire multi-sector CDS portfolio
through its existing credit agreement with the Federal Reserve Bank of
New York. As previously announced, AIG and the Federal Reserve have
funded the Maiden Lane III facility, which has negotiated agreements to
settle $53.5 billion of AIG's $71.6 billion CDS portfolio.
The notional amount attributable to the cash settlement portion of the
AIG Financial Products multi-sector credit default swap portfolio has
been consistently included in the total AIG Financial Products
multi-sector credit default swap exposure in AIG's SEC filings and is
explained on page 117 of AIG's Quarterly Report on Form 10-Q for the
period ending September 30, 2008."
American International Group, Inc. (AIG), a world leader in insurance
and financial services, is the leading international insurance
organization with operations in more than 130 countries and
jurisdictions. AIG companies serve commercial, institutional and
individual customers through the most extensive worldwide
property-casualty and life insurance networks of any insurer. In
addition, AIG companies are leading providers of retirement services,
financial services and asset management around the world. AIG's common
stock is listed on the New York Stock Exchange, as well as the stock
exchanges in Ireland and Tokyo.
American International Group, Inc.
Nick Ashooh, 212-770-3523
Joe Norton, 212-770-3144