Posted by Larry Doyle on May 26th, 2010 3:17 PM |
Our financial regulators, government officials, and central bankers may believe the shell game being played with AIG might work to lure buyers into the AIG den but the fact is AIG remains the institutional equivalent of ‘dead man walking.’
Who gets that and is not reluctant to speak her mind? Tarp watchdog and consumer advocate Elizabeth Warren. Her courage on this topic is on display today while AIG chairman Robert Benmosche would like to continue to shuffle the shells around in an attempt to continue to play the game. (more…)
Posted by Larry Doyle on April 1st, 2010 5:14 PM |
Former Clinton Secretary of Labor Robert Reich had some very strong words today for the Federal Reserve. In his commentary which I find at Wall Street Pit, Reich questions the constitutionality of the Fed’s actions in 2008. None of this comes as a surprise, but it should cause America to wake up to the fact that the Wall Street-Washington incestuous relationship has run roughshod over America before and now throughout our economic crisis.
Who in Washington is willing to blow the whistle on this incest? Reich writes, The Fed in Hot Water:
The Fed has finally came clean. It now admits it bailed out Bear Stearns – taking on tens of billions of dollars of the bank’s bad loans – in order to smooth Bear Stearns’ takeover by JPMorgan Chase (JPM). (more…)
Posted by Larry Doyle on January 27th, 2010 3:41 PM |
What is wrong with this picture?
1. The American taxpayer injects tens of billions of dollars into a failing AIG.
2. The debate runs hot as to how the Feds executed a backdoor bailout of AIG’s creditors, both Wall Street and international banks.
3. The taxpayer remains on the hook, the banks get their dough, and AIG attempts to resurrect itself.
I will tell you what is wrong with the picture. We are now going on two years and nobody has truly been held accountable. (more…)
Posted by Larry Doyle on January 27th, 2010 12:25 PM |
Many eyes are focused on the grilling of Treasury Secretary Geithner on the Hill. Have we learned anything new? Not really. Geithner is maintaining that he and others within the New York Fed and the Federal Reserve operated within the best interests of the American taxpayer because they were working to save the system. Numerous Congressmen are drilling Geithner on his actions to pay creditors 100 cents on the dollar.
Having watched this debate this morning, in my opinion we will not receive any real clarity or clear cut winners. I do find it laughable that Geithner asserts that the Treasury has promoted unprecedented levels of transparency under his leadership. Neil Barofsky, head of SIGTARP, and Elizabeth Warren, the TARP watchdog, have highlighted the extensive lack of transparency by Treasury under Geithner. (more…)
Posted by Larry Doyle on January 7th, 2010 9:31 AM |
Tim Geithner, then head of the New York Fed, blinked and screwed the American taxpayer out of billions of dollars in the process. How so?
Geithner and his cronies in Washington have misrepresented–if not outright lied–about the payments to both domestic and foreign banks in settling exposures to then failing AIG. While politicians and pundits alike will reference the precarious nature of the time and heat of the moment to defend Geithner and his cronies, the simple fact is the settlement of the AIG swaps at 100 cents on the dollar was nothing short of one of the greatest heists in our country’s history.
This heist transferred multiple billions of dollars from the American taxpayer to the likes of Goldman Sachs, JP Morgan, Societe Generale, and many more domestic and foreign banks as well. (more…)
Posted by Larry Doyle on September 17th, 2009 3:59 PM |
Did Uncle Sam get his pocket picked in the sale of AIG Asset Management to Hong Kong billionaire Richard Li’s Pacific Century Group? It would appear as if Uncle Sam was ‘picked off’ . . . or is there something else going on contingent to this transaction? Why should the American taxpayer care about this sale of AIG Asset Management to a Chinese entity? For the very simple reason that you, me and every other American taxpayer own 80% of AIG. Are the power brokers in Washington or the people they have put in charge at AIG protecting our interests? On this transaction, further questions need to be asked.
AIG Asset Management has approximately $89 billion in assets under management. Very credible sources whom I respect have shared with me that the assets consist of the following:
> $50 billion in equities which generate fees of 50 basis points per year or a total of $250 million
> $15 billion in private equity which generate fees of 2% per year and 20% of profits for a minimum of $300 million
> $5-$10 billion in fund of funds which generate fees of 1% per year and 10% of profits for a minimum of $50 million
> $15 billion of fixed income (bonds) which generate fees of approximately 65 basis points per year or a total of $97.5 million
Total it up and AIG generated a top line revenue of at least $700 million. My source indicates the top line was more likely between $800 million and $1 billion.
What did Hong Kong based Pacific Century pay for this cash flow? A mere $300 million with contingency fees based upon performance which may take the price up to $500 million. Thus, Pacific Century paid at most .7 times cash flow.
What does that price mean on a relative basis? Again in an attempt to be conservative, asset management businesses have traded for between 8-12 times cash flow. Even if I cut that estimate in half and said that AIG is a distressed seller and the premium for asset management business units has come down, 5 times cash flow would equate to a bare minimum price for this business of $3.5 billion.
What is going on? Why did AIG Asset Management trade so cheaply? Is this some form of payback that Uncle Sam is making to China? Is there a process in place to keep these sales honest? Where does one receive information and transparency on the sale of AIG’s assets?
Many people on Wall Street are scratching their heads on this transaction.
Recently appointed AIG CEO Robert Benmosche indicated that he was going to be patient and get fair value for AIG’s business units. If this transaction is any indication of Benmosche’s patience and measure of fair value, then he is clearly not the guy for the job.
In my opinion, though, the individual who needs to provide some answers here is Treasury Secretary Geithner. Recall that AIG was saved via TARP funds. Who oversees the TARP? Secretary Geithner. With sales such as this one, the American taxpayer will never get repaid for bailing out AIG.
Something smells here.
Posted by Larry Doyle on August 6th, 2009 11:44 AM |
The Wall Street Journal reports that former AIG CEO Hank Greenberg has settled accounting charges brought by the SEC for $15 million. Greenberg to Pay $15 Million to Settle SEC Fraud Case. For Greenberg, that $15 million settlement is the equivalent of leaving a nice tip after a good meal.
Recall that Greenberg recently won a case against AIG over claims to $4.3 billion of AIG stock. As Bloomberg reported on July 8th, AIG Looting Case Against Starr Was Weak.
The fact is Hank Greenberg has always been viewed as an arrogant, ruthless individual who ran AIG as his personal fiefdom. As was shared with me and I wrote this past February 24th in a post, “How Does One Lose $125 Billion?”:
It is believed by some AIG veterans that under Hank’s watch the books were cooked via a money laundering scheme centered offshore and executed through an office in New Hampshire.
The accounting malfeasance supposedly went back to the 1970s.
More than a little disconcerting.
$15 million is hardly a rounding error for Mr. Greenberg.
Posted by Larry Doyle on July 31st, 2009 8:04 AM |
While our equity markets are making new highs for the year, I cautioned readers the other day “No Time for Complaceny on Insurance and Money Fund Exposures.” On the insurance front, I specifically highlighted:
Experts Call for Fed Involvement in Insurance Industry — but to Different Degrees; InvestmentNews, July 29, 2009
Members of Congress are being urged to create — at a minimum — a new regulatory body within the federal government to focus on the insurance industry. “There is some systemic risk in insurance requiring a regulator,” said Travis Plunkett, legislative director of the Washington-based Consumer Federation of America, who was part of a panel of experts testifying today at a Senate Banking Committee hearing on modernizing insurance regulation.
“In order to fully understand and control systemic risk in this very complex industry, the federal government should take over solvency and prudential regulation of insurance as well.
Where may this systemic risk within the insurance industry originate? None other than our ward of the state, AIG. We are reminded of the massive systemic risk, if not potential illegal business dealings, occurring at AIG in this morning’s New York Times, which reports After Rescue, New Weakness Seen at AIG:
The dozens of insurance companies that make up the American International Group show signs of considerable weakness even after their corporate parent got the biggest bailout in history, a review of state regulatory filings shows.
Over time, the weaknesses could mean trouble for A.I.G.’s policyholders, and they raise difficult questions for regulators, who normally step in when an insurer gets into trouble. State commissioners are supposed to keep insurers from writing new policies if there is any doubt that they can cover their claims. But in A.I.G.’s case, regulators are eager for the insurers to keep writing new business, because they see it as the best hope of paying back taxpayers.
While insurance in general is a pure statistical risk management business, in AIG’s case writing new business and collecting new premiums to pay off current outstanding liabilities amounts to a Ponzi scheme orchestrated by Uncle Sam. (more…)