AIG - American International Group

[PlanMaestro]

http://www.reuters.com/article/2012/04/25/us-aig-airlease-lawsuit-idUSBRE83O02R20120425

 

American International Group Inc (AIG.N) has sued the co-founder and former chief executive of its aircraft-leasing unit, Steven Udvar-Hazy, accusing him and other former employees of stealing several thousand electronic files containing trade secrets.

[gokou3]

REFILE-Nomura joins bid for toxic crisis assets

http://www.reuters.com/article/2012/04/25/nomura-maidenlane-idUSL2E8FP7XO20120425?feedType=RSS&feedName=bondsNews&rpc=43

 

Nomura has joined the team of Bank of America and Morgan Stanley bidding on US$7.5bn in commercial real estate CDOs from the Fed's Maiden Lane III portfolio of toxic assets.

 

...

 

The structure would create a US$1.72bn AAA-rated tranche out of the CDOs, which are nearly 50% comprised of junk-rated securities backed by commercial real-estate mortgages.

 

Under the proposal, Moody's would rate the new securities. The Triple A, Class A bond would have a weighted average life of 3.9 years; The Aa1-rated Class B, for US$2.57bn, would have a weighted average like of 4.7 years; the Class C1, rated Baa3, for US$1.209bn would be five years; and Class C2, for US$2bn, has a 5.2-year weighted average life, but would not be rated.

 

The Triple A spread is projected to price at 179bp above swaps and a $93 price; the Aa1 projected at 509bp above swaps and a $81 price; the Baa3 at 768bp over swaps and a $76 dollar price; and the Class C2 at 60bp over swaps and a $60 dollar price.

 

...

 

The current structure of the Maiden Lane III bonds on offer are estimated to be worth between upper-50 cents to lower-60 cents on the dollar.

 

Based on the above, I figure the RE-REMIC are being priced for end investors at weighted average of 77% par.  Is it conservative to assume that these bidders will bid at ~70%, which would be about 10 points higher than the current market estimate?

[mankap]

If Maiden Lane 3 assets are sold at 70%, does this mean there is upside for AIG from the book value.

[BargainValueHunter]

Collapsing the CDO could get quite complicated...

 

http://soberlook.com/2012/04/fed-needs-to-move-quickly-on-maiden.html

 

    IFR/Reuters: - Citi, Goldman and Credit Suisse are joining forces to submit a combined bid for the bonds, which they believe will be more competitive than acting individually, sources familiar with the plan said on Monday.

 

    The debt in the Maiden Lane III portfolio is known as the MAX CDOS, and the deals were originally arranged by Deutsche Bank.

 

Blackrock, who is managing this portfolio has been criticized for not extracting the full value for the Fed by entertaining this group bid.

 

    IFR/Reuters: - “If Blackrock really wanted to recoup maximum proceeds for the taxpayer, they’d look into collapsing the CDO themselves, and auctioning off the individual bonds,” said Adam Murphy, president of Empirasign Strategies in New York, which tracks trading in securitized debt.

 

"Collapsing the CDO" however is easier said than done. In order to sell the underlying portfolio of CMBS securities held as collateral in the two CDO structures, one needs to control the CDO liabilities.

 

    IFR/Reuters: Deutsche Bank already owns junior tranches of the collateralized debt obligation (CDO) on offer and if it also purchases the senior parts it may hold majority ownership in the structure.

 

Therefore whoever wants to sell off the individual bonds first needs to buy the junior tranches from Deutsche. But that wouldn't be the end of it. There is also a rate swap (which has seniority in such deals) that needs to be terminated with Barclays before collateral could be unlocked.

 

    Businessweek: - The CDOs could be sold intact or broken into pieces. An interest-rate swap contract with Barclays would need to be paid out to access the underlying bonds, eating into profits, according to JPMorgan Chase & Co. (JPM) (JPM) Deutsche Bank, which owns the most junior slices of the CDOs, would need to be bought out to break up the CDO, according to people familiar with the deals.

 

Barclays (actually the old Lehman people) even suggested that instead of selling the collateral, they would actually "re-tranche" the CDO to make the senior tranches better quality (more subordination) - "putting the humpty dumpty together again". That may make these bonds more attractive to institutional buyers, but would take time.

 

http://1.bp.blogspot.com/-IhtsgmbiKvM/T5cz7HUDVFI/AAAAAAAAEQ4/SmgKmpU0OSQ/s1600/Maiden%2BLane%2BIII%2Bdiagram.png

[mankap]

Looks like BAC is bidding at low 60c.

if Fed get the right price, they will sell the CDO's and it is for the buyer to break it then sell it.

The bids are due tomorrow.

 

http://online.wsj.com/article/SB10001424052702303990604577366324019371582.html

 

Two bundles of bonds that once helped sicken American International Group Inc. AIG +1.33% now have Wall Street salivating.

 

Some of the biggest banks are teaming up to jockey for the securities, which may be sold in coming days by the Federal Reserve Bank of New York. The banks would then sell the bonds off to clients such as money managers, hedge funds and insurance companies.

 

With the Thursday morning bidding deadline looming, Credit Suisse AG, CSGN.VX -2.51% Goldman Sachs Group Inc. GS -0.11% and Citigroup Inc. C +0.78% have joined forces in recent days, as have Bank of America Corp., BAC +0.61% Morgan Stanley MS -1.49% and Nomura Holdings Inc. 8604.TO -2.03% Two firms that have already have interests tied to securities, Barclays BARC.LN 0.00% PLC and the original underwriter, Deutsche Bank AG, DBK.XE +2.14% are planning on bidding together as well.

 

 

At stake are some $7.5 billion in face value of bundles of bonds known as collateralized-debt obligations, or CDOs. While the New York Fed has previously sold securities it picked up in its AIG rescue, this batch and others in the portfolio represent some of the most complex bonds of the pre-financial crisis era.

 

The bonds are composed of commercial mortgage-backed securities and were issued near the peak of the real-estate boom. The CMBS are now attractive to investors because they offer substantial interest rates at a time when high-yielding debt is in short supply.

 

The planned sales by the regional Fed bank come more than three years after banks including Bank of America, Barclays, Deutsche, Goldman and Morgan Stanley were paid billions of dollars by AIG and the New York Fed to exit souring trades the banks had with the insurer during the crisis. The banks in late 2008 were paid a total of 100 cents on the dollar for CDOs, which had plunged in market value. Investors can now buy the securities in some cases for less than half their face value.

 

The securities up for bid represent about one sixth of the bonds in a vehicle called Maiden Lane III that have an unpaid principal balance of $47 billion. The CDOs held in Maiden Lane III had an average fair-market value of about 36 cents on the dollar at the end of 2011.

 

A sale isn't certain, as the New York Fed has said that it would sell only if the price represented good value to the public. But market participants say there should be ample appetite for the securities. "It's a very good time to bring this to market," said Edward L. Shugrue III, chief executive of Talmage LLC, which has $1.7 billion invested in CMBS and real-estate debt.

 

That demand is drawing the interest of the banks, even though turning these bonds around will be no mere flip job: The winning bidders may have to repackage billions of dollars worth of their most arcane securities dating from the peak of the credit boom into new, highly rated bonds attractive to risk-averse investors.

 

"To see one of this size, that's been in isolation or one that's almost been in a cryogenic freezer for four years, that's a pretty rare event," said Darrell Wheeler, a CMBS strategist at Amherst Securities.

 

The bidding is the latest sign of the New York Fed's progress in selling the remnants of its 2008 rescue of AIG, which involved as much as $182 billion in aid and has left the government with a 70% stake in the insurer.

 

The Bank of America dealer group on Tuesday suggested in notes to investors that it might bid in the low-60 cent on the dollar range for the assets, which analysts at two other firms said were worth more than 80 cents on the dollar. The bid was probably factoring for possible costs of breaking the CDO into parts, and compensating for any decline in market prices pressured by related sales, according to analysts.

 

These costs are limiting what the dealers can offer the New York Fed, which could dissuade the bank from conducting the sale of the assets at all. But some dealers are trying to avoid breaking up the CDOs.

 

Taxpayers are unlikely to incur losses because not all the money the banks received came from the New York Fed. More than half of a $24.3 billion loan the Fed provided to fund the purchase of the CDOs has been repaid, and the securities are now worth significantly more than the remaining loan balance.

 

New issue volume for CMBS is a fraction of what it was during the boom years. The amount outstanding shrank by about $43 billion in the past year, to $584 billion, according to Bank of America Merrill Lynch.

[theando]

Bloomberg has a big article out today on AIG. I can only find it on the terminal, so here is a link.

 

http://dl.dropbox.com/u/32606407/Maiden%20Lane.txt

 

 

[PlanMaestro]

Fed Sells CDO Debt From AIG Rescue to Barclays, Deutsche Bank

http://www.bloomberg.com/news/2012-04-26/fed-sells-cdo-debt-from-aig-rescue-to-barclays-deutsche-bank.html

 

The joint winning bid “represents good value for the public and significantly exceeds the original price” the central bank paid for the assets, New York Fed President William C. Dudley

 

 

[PlanMaestro]

Steve Miller continues his victory tour

 

Govt. May Be Out Of AIG in 12 Months

http://www.businessweek.com/videos/2012-04-25/government-may-liquidate-aig-stake-in-12-months

 

Miller: 'Nobody Can Just Cut Their Way to Success'

http://www.bloomberg.com/video/91347382/

 

AIG Chairman's Lessons Learned Fom Chrysler Bailout

http://www.businessweek.com/videos/2012-04-25/millers-lessons-learned-from-chrysler-bailout

 

Miller: How I Pick a Rehab Project

http://www.bloomberg.com/video/91367926/

 

 

[mhdousa]

Steve Miller continues his victory tour

 

Govt. May Be Out Of AIG in 12 Months

http://www.businessweek.com/videos/2012-04-25/government-may-liquidate-aig-stake-in-12-months

 

Miller: 'Nobody Can Just Cut Their Way to Success'

http://www.bloomberg.com/video/91347382/

 

AIG Chairman's Lessons Learned Fom Chrysler Bailout

http://www.businessweek.com/videos/2012-04-25/millers-lessons-learned-from-chrysler-bailout

 

Miller: How I Pick a Rehab Project

http://www.bloomberg.com/video/91367926/

 

One more stop on his tour:

[gokou3]

Barclays, Deutsche Bank win auction of toxic AIG assets

http://in.reuters.com/article/2012/04/26/defaults-aig-idINL2E8FQFB720120426

 

The banks likely bid greater than 65.6 cents on the dollar, suggesting that the winner paid full market value for their bonds, according to a research article published on Thursday afternoon by CMBS strategists at Amherst Securities. The analysts also reported that Deutsche Bank and Barclays were able to pre-place all of the underlying CMBS bonds.

[mankap]

 

 

http://www.cbsnews.com/8301-500395_162-57422276/fed-auctions-off-toxic-assets-to-barclays-deutsche-bank/

 

The newly sold toxic assets, with a face value of $7.5 billion, represent about 16 percent of the so-called Maiden Lane III portfolio that was created to buy the securities, repay debt and provide capital for some AIG operations.

 

[PlanMaestro]

Credit Suisse analyst Thomas Gallagher said on Thursday that "assuming that the CDOs were sold at 70c, this implies that the Fed will realize ~$5.25B of value from the transaction, the proceeds of which will help pay down the $8.7B remaining on the Fed loan backing ML III," adding that his firm assumed that "AIG's favorable mark on the sale should be roughly $300mm (though a portion of this may have already been recorded in 1Q 12)." According to Gallagher, the Fed will continue its efforts to sell the remaining Maiden III assets by year-end, valued at an estimated $13.5 billion at the end of 2011.

 

[racemize]

One thing I did mean to post--as Sanjeev mentioned in the other thread, Andy Bernard (FairFax Insurance Manager) stopped by at the pre-dinner event and we were able to ask him about AIG.  Here's the summary of what I remember:

 

1) AIG was the 800 lb gorilla, then 2008 happened

2) After 2008, people were unsure if it would recover and there was a lot of talent/business leaving

3) AIG is once again the 800 lb gorilla

4) Has a little more leverage than you might like

5) Is fine barring another 2008 event

 

I mentioned that they said they retained 92% of clients--he seemed to think they might have initially left and come back, but didn't really have a comment on it.

[PlanMaestro]

Thanks Racemize! Can we ask for more details? When he said that AIG was once again the 800 lb gorilla was it in a good or bad way as an investor? In the sense that AIG is a big stupid ape, that they have pricing power, that clients have switching costs, ....

 

One thing I did mean to post--as Sanjeev mentioned in the other thread, Andy Bernard (FairFax Insurance Manager) stopped by at the pre-dinner event and we were able to ask him about AIG.  Here's the summary of what I remember:

 

1) AIG was the 800 lb gorilla, then 2008 happened

2) After 2008, people were unsure if it would recover and there was a lot of talent/business leaving

3) AIG is once again the 800 lb gorilla

4) Has a little more leverage than you might like

5) Is fine barring another 2008 event

 

I mentioned that they said they retained 92% of clients--he seemed to think they might have initially left and come back, but didn't really have a comment on it.

[racemize]

Thanks Racemize! Can we ask for more details? When he said that AIG was once again the 800 lb gorilla was it in a good or bad way as an investor? In the sense that AIG is a big stupid ape, that they have pricing power, that clients have switching costs, ....

 

One thing I did mean to post--as Sanjeev mentioned in the other thread, Andy Bernard (FairFax Insurance Manager) stopped by at the pre-dinner event and we were able to ask him about AIG.  Here's the summary of what I remember:

 

1) AIG was the 800 lb gorilla, then 2008 happened

2) After 2008, people were unsure if it would recover and there was a lot of talent/business leaving

3) AIG is once again the 800 lb gorilla

4) Has a little more leverage than you might like

5) Is fine barring another 2008 event

 

I mentioned that they said they retained 92% of clients--he seemed to think they might have initially left and come back, but didn't really have a comment on it.

 

I took it to mean the largest competitor, I think the wikipedia summary is as good as I can do:

"800 pound gorilla" is an American English expression for a person or organization so powerful that it can act without regard to the rights of others or the law.[1] The phrase is rooted in a riddle:

"Where does an 800 lb. gorilla sleep?"

The answer:

"Anywhere it wants to."

This highlights the disparity of power between the "800 lb. gorilla" and everything else.

The term can describe a powerful geopolitical and military force, or, in business, a powerful corporate entity that has such a large majority percentage of whatever market they compete within that they can use that strength to crush would-be competitors. (The metaphor includes an inherent bit of hyperbole; the highest weight yet recorded for an actual gorilla is 600 lb (270 kg).)

 

In other words, I think he meant it was good that it was back (in terms of the insurance, particularly in P&C). 

 

As for other details, we only got a few questions in, so that's about all I remember.  If I forgot something, maybe the others that were there will post.

[racemize]

Looking at this article (I liked parts I and II):

 

http://seekingalpha.com/article/539791-the-market-still-does-not-recognize-aig-s-value

 

it appears the plausible bears are looking at the reserve being the issue (on the comments).  However, using the reserve triangle analysis I posted, it seems like reserving is decent (unless we see some major revisions to the last three years, which have less data).

[BargainValueHunter]

Can this bode well for other companies that wish to price CDOs in the open market?

 

http://www.foxbusiness.com/news/2012/05/01/new-commercial-cdo-sale-launched-in-wake-ny-fed-auction/

 

The bonds are the senior slices of CDOs known as WAVE 2007-1X, WAVE 2007-2A and WAVE 2007-2X. Dealers, which also include Goldman Sachs Group (GS), Citigroup Inc. © and Sterne Agee, have set a bidding deadline for Wednesday, May 9, according to investors familiar with the list.

 

Last week, Deutsche Bank AG (DB, DBK.XE) told investors it retained just 11.7% of bonds that traded through the firm after it and Barclays won the auction from the New York Fed's Maiden Lane III portfolio. Notice that most bonds had been sold to investors calmed concern that demand was too thin to absorb the supply, analysts said.

[racemize]

pulled this from WRB thread by Plan:

 

http://www.propertycasualty360.com/2012/04/24/wr-berkley-stupid-cos-may-not-be-able-to-make-hard

 

Declaring that a turn to a hard market cycle is more visible, the chief executive of W.R. Berkley Corp. says a company somewhere is in for major trouble because they are “stupid” not to increase rates. “Hard markets always start this way and then something happens,” which leads to "dire financial difficulties," says William R. Berkley, the CEO of the Greenwich, Conn.-based insurer during a conference call to discuss first quarter earnings today.

 

The “something” happens when companies have to begin to pay for their underpriced past. It occurs every time the market begins an upward cycle, Berkley says. “It happened to AIG [American International Group Inc.] but AIG got bailed out by the government,” Berkley says. "Look at all the billions of dollars of deficiencies they had to make up for."

 

No one knows “where and what is sitting out there,” but “usually someone doesn’t have the ability to make it through” the cycle turn, Berkley continues. "I don't know who that's going to be and I can't tell you for sure."

.....

 

But again, the environment varies in specific lines. In excess workers compensation, for example, one company remains aggressive, pricing business 20-to-40 percent less than W.R. Berkley. “That’s one place where we lost substantial business,” Berkley says. Parts of the professional liability market also remains resistant to price increases.

 

I'm not sure I agree too much with his assessment on AIG before the bailout--the reserve changes were for <2003 and they were running a surplus from 2003-2007.  Perhaps I'm misinterpreting his statement though.

 

That being said, I really hope they weren't underpricing too badly from 2008-2011--so far the reserve changes have been less than 400 million, but that could change in the future.

[Uccmal]

Racemize, Looks to me like he is talking about boneheaded moves in general rather than reserving specific.  To my recollection the last hard market was precipitated by the dot com crash, Asbestos claims, and 911, followed by Katrina et al. 

 

This time around it may be subtler.  A slow erosion of cash from under reserving combined with record low interest income.  FWIW.

[PlanMaestro]

http://www.ft.com/cms/s/0/8fc29e22-9466-11e1-8e90-00144feab49a.html#ixzz1tk48W52m

 

Though the price was not disclosed, analysts from JPMorgan estimate that the winning bid from Deutsche Bank and Barclays was 67 cents on the dollar. That means the CDOs generated enough demand to surpass the $4.2bn the New York Fed reckoned was fair market value at the end of 2011. “A good portion of this was highly valuable to people who just wanted to buy yield in a market where Treasury yields are 2 per cent,” Mr Wheeler says. He estimates that the underlying bonds, which date from 2005 to 2007, carry adjusted default yields of between 5 and 12 per cent depending on vintage.

[racemize]

AIG quarter:

 

http://finance.yahoo.com/news/aig-reports-first-quarter-2012-200000894.html

[PlanMaestro]

AIG quarter:

 

http://finance.yahoo.com/news/aig-reports-first-quarter-2012-200000894.html

 

Book Value: $57.7 per share 

 

Chartis

COR ex-CAT: 100.4 (98.3 Q1'11)

Expense ratio: 34.1 (28.9 Q1'11)

[txlaw]

Benmosche on CNBC:

 

http://video.cnbc.com/gallery/?video=3000088158&play=1

[racemize]

financial supplement:

 

http://www.aigcorporate.com/investors/2012_May/Q12012_FinancialSupplement.pdf

 

and presentation:

 

http://www.aigcorporate.com/investors/2012_May/1Q12_EarningsPresentation.pdf

[MrB]

Maiden Lane is progressing well.

Latest values - http://www.newyorkfed.org/markets/maidenlane.html

Latest news: New York Fed Solicits Bids for Triaxx CDO Holdings in Maiden Lane III LLC http://www.newyorkfed.org/newsevents/news/markets/2012/an120504.html