AIG SHOULD BARGAIN WITH COUNTERPARTIES, SAYS GAO

The Government Accountability Office (GAO), the investigative arm of Congress, has recommended that the Treasury should deny AIG access to $30bn in contingency bailout funds until the company agrees to rescind millions of dollars in executive bonuses and renegotiate an exit to credit-default swaps with counterparties. In a report released yesterday, the GAO made six recommendations, including a recommendation that the $30bn be withheld until the insurer agrees to “seek additional concessions from employees and existing derivatives counterparties”. The GAO added that, although $70bn had already been disbursed to AIG, “more assistance than has been provided to any other institution to date:, it had not finalized the agreement over the additional $30bn. Therefore, the GAO said, “Treasury has an opportunity to further improve the integrity and accountability associated with this additional assistance”. Although bonuses to executives at AIG have caught the headlines, the decision to pay derivatives counterparties at 100 cents on the dollar rather than negotiate a more market-related price resulted in payments of $12.9bn to Goldman Sachs, $11.9bn to Société Générale, $11.8bn to Deutsche Bank and $8.5bn to Barclays Bank. At least 24 US and European banks that were counterparties to credit default swaps written by AIG are understood to have received payment in full.