AIG Financial Products Corp. (AIGFP) is a subsidiary of American International Group, based in London. AIGFP is considered a key company in the global financial crisis of 2008–2009.
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History
Joseph Cassano and Howard Sosin helped start the group in 1987. AIGFP businesses specialize interest rate and currency swaps and, more broadly, the capital markets.
AIGFP focused principally on OTC derivatives markets and acted as principal in nearly all of its transactions involving capital markets offerings and corporate finance, investment and financial risk management products. AIGFP played key roles in the acquisition of London City Airport and, in one of the largest private equity transactions announced in 2006, the management-led buyout of Kinder Morgan Inc.
AIGFP's commodity derivatives and commodity indices helped stimulate the development of this new asset class. AIGFP's sponsored a major study on the historical performance of commodity futures by professors Gary Gorton and K. Geert Rouwenhorst.[1] AIGFP created a specialized credit business. AIGFP focused its business on structured products like CDO's. In 2003, it absorbed subsidiary, AIG Trading Group (AIG-TG) which dealt primarily in over the counter derivatives and created the Dow Jones-AIG Commodity Index (DJ-AIGCI) from their offices in Greenwich, CT. At that point, the Market and Credit Risk management groups were reduced in size. The DJ-AIGCI is a leading commodity benchmark composed of 19 futures contracts on physical commodities. As of the end of June 2007, there was an estimated $38 billion invested in financial products that track the DJ-AIGCI on a global basis.[2]
From 1987 to 2004, AIGFP contributed over $5 billion to AIG’s pre-tax income. During that period, AIG's market capitalization increased from $11 billion to $181 billion, and its stock price increased from $4.50 per share to $62.34 per share.
Crisis of 2008
AIGFP's trading in credit derivatives led to enormous losses.[3] These losses at AIGFP division essentially bankrupted the entire AIG operation, and forced the United States government to bail out the insurer.[4] Under CEO Edward Liddy, the decision was made to unwind AIG Financial Product's entire book of business. Gerry Pasciucco, a managing director at Morgan Stanley, who was not involved with AIG FP when it made its catastrophic bets, was selected to manage the unwinding of the portfolio in October 2008, after the company had effectively failed and been taken over by the Federal Reserve.[5]
External links
- AIG Financial Products home page.
References
- ^ AIG Financial Products Corp. Releases Innovative Academic Research on Commodities, Business Wire, July 11, 2007
- ^ What Greenberg Might Have Said, National Underwriter, Oct 7, 2008.
- ^ Behind Insurer’s Crisis, Blind Eye to a Web of Risk, New York Times, September 27, 2008.
- ^ AIG Former Auditor Warned About Derivative Valuation in 2007, Bloomberg News, October 11, 2008.
- ^ Teitelbaum, Richard and Hugh Son. "Unwinding at AIG Prompts Pasciucco to Ponder Systemic Failure", Bloomberg, July 1, 2009. Retrieved on July 1, 2009.
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