Posted on 28 Apr 2010
Since the last GAO Report in September 2009, AIG's financial condition has remained relatively stable, as measured by several indicators, largely due to the federal assistance provided by the Federal Reserve and Treasury to assist AIG as a result of its determination that the company posed systemic risk to the financial system. Here's a summary of the report:
The federal assistance also appears to be facilitating a more orderly restructuring of the company. GAO's indicators show that, in general, the improvements in AIG’s condition in the second quarter of 2009 continued into the third and fourth quarters due largely to ongoing federal assistance.
Several indicators show that AIGFP has continued to unwind its credit default swap positions. AIGFP also has shown progress in unwinding its Super Senior credit default swap portfolio but has made less progress in reducing the remaining multi-sector collateralized debt obligations (securities backed by a pool of bonds, loans, or other assets) portfolio. Several indicators on the status of AIG’s insurance companies illustrate that AIG’s insurance operations are showing signs of recovery, but federal assistance has been a critical factor. For the first time since the second quarter of 2008, additions to AIG life and retirement policyholder contract deposits have exceeded withdrawals. AIG’s property/casualty companies also have shown some improvements.
AIG is continuing to repay its debt to the federal government, but much of the progress reflects the numerous exchanges of debt that AIG owed the Federal Reserve Bank of New York Revolving Credit Facility (facility) with various issues of preferred equity. As a result of this shift from debt to equity, which has occurred gradually, the authorized amount of the facility has decreased and the amount of preferred equity interests held in AIG and various special purpose vehicles for the government has increased. For example, as of December 30, 2009, the amount of assistance available to AIG through the facility had dropped to $35 billion and the amount AIG owed the facility had dropped to $23.4 billion, while the amount of equity or equity interest held by the government increased to almost $95 billion.
Consequently, the government’s exposure to AIG is increasingly tied to the future health of AIG, its restructuring efforts, and its ongoing performance. However, the sustainability of any positive trends in AIG’s operations depends on how well it manages its business in this current economic environment. Similarly, the government’s ability to fully recoup the federal assistance will be determined by the long-term health of AIG, the company’s success in selling businesses as it restructures, and other market factors such as the performance of the insurance sectors and the credit derivatives markets that are beyond the control of AIG or the government. The GAO will continue to monitor these issues in our future work.