AIG troubles deepen after US regulator launches swaps probe
Thursday, 12 June 2008
Francesco Guerrera in New York and Joanna Chung in Washington
FT Syndication Service
The troubles of American International Group deepened last week after it emerged that the US insurer was being probed by regulators over its valuation of subprime-related derivatives.
News of the investigation by the Securities and Exchange Commission sent AIG shares to their lowest point in 11 years and raised pressure on Martin Sullivan, the embattled chief executive.
The SEC is looking at the way AIG valued derivatives linked to subprime mortgages, according to people briefed on the matter.
They added that federal prosecutors had also asked for information on the SEC probe.
The regulatory moves - first reported by the Wall Street Journal - come after AIG has suffered more than $30bn in credit-related writedowns and last month recorded the biggest quarterly loss in its history.
In February, AIG's auditors found a "material weakness" in the company's accounting systems.
The Securities and Exchange Commission and the US attorney's office declined to comment.
AIG also declined to comment on the probes but said its policy was to "always co-operate with all our regulators whenever we are asked to do so".
The company added that it had "consistently and promptly provided our best estimates" of its derivatives valuations and potential exposures.
The insurer's financial and regulatory troubles have raised questions over the position of Mr Sullivan, who replaced Hank Greenberg, AIG's long-standing chief executive, in 2005 during an investigation into its accounting.
AIG is still looking for a chief financial officer following the decision last month to move Steven Bensinger, the current holder of the post, to another role in the company.
But last month Bob Willumstad, AIG's chairman, backed Mr Sullivan, saying he was "the right guy" to lead the company out of its crisis.
AIG raised about $20bn to bolster its balance sheet last month - 60 per cent more than its original target - but some investors considered the move a sign that the company could suffer further writedowns.
The SEC's investigation into AIG's positions underlines regulators' heightened interest in companies' valuation methods during the credit crunch.
Regulators are concerned that the lack of trading activity in many asset classes makes it difficult for companies to value securities at market prices, as required by the accounting rules, and could leave the door open to abuse.
In AIG's case, the regulators are believed to be looking at the way AIG valued collateralised debt obligations -- securities backed by subprime mortgages.
FT Syndication Service
The troubles of American International Group deepened last week after it emerged that the US insurer was being probed by regulators over its valuation of subprime-related derivatives.
News of the investigation by the Securities and Exchange Commission sent AIG shares to their lowest point in 11 years and raised pressure on Martin Sullivan, the embattled chief executive.
The SEC is looking at the way AIG valued derivatives linked to subprime mortgages, according to people briefed on the matter.
They added that federal prosecutors had also asked for information on the SEC probe.
The regulatory moves - first reported by the Wall Street Journal - come after AIG has suffered more than $30bn in credit-related writedowns and last month recorded the biggest quarterly loss in its history.
In February, AIG's auditors found a "material weakness" in the company's accounting systems.
The Securities and Exchange Commission and the US attorney's office declined to comment.
AIG also declined to comment on the probes but said its policy was to "always co-operate with all our regulators whenever we are asked to do so".
The company added that it had "consistently and promptly provided our best estimates" of its derivatives valuations and potential exposures.
The insurer's financial and regulatory troubles have raised questions over the position of Mr Sullivan, who replaced Hank Greenberg, AIG's long-standing chief executive, in 2005 during an investigation into its accounting.
AIG is still looking for a chief financial officer following the decision last month to move Steven Bensinger, the current holder of the post, to another role in the company.
But last month Bob Willumstad, AIG's chairman, backed Mr Sullivan, saying he was "the right guy" to lead the company out of its crisis.
AIG raised about $20bn to bolster its balance sheet last month - 60 per cent more than its original target - but some investors considered the move a sign that the company could suffer further writedowns.
The SEC's investigation into AIG's positions underlines regulators' heightened interest in companies' valuation methods during the credit crunch.
Regulators are concerned that the lack of trading activity in many asset classes makes it difficult for companies to value securities at market prices, as required by the accounting rules, and could leave the door open to abuse.
In AIG's case, the regulators are believed to be looking at the way AIG valued collateralised debt obligations -- securities backed by subprime mortgages.