AIG discloses details on toxic securities that prompted government bailout

NEW YORK _ American International Group Inc. on Friday disclosed details of the toxic securities that helped trigger a massive taxpayer rescue of the giant insurer.

In a public filing, AIG listed the securities held in its Maiden Lane III business, which the company and the government created to purchase toxic assets, repay debt and provide capital for some of AIG's operations after its US$182.5-billion U.S. government bailout.

The U.S. Federal Reserve had previously resisted disclosing details on the securities. It argued that doing so could disrupt the market for those assets, possibly making it harder to sell or unwind them.

But AIG disclosed the details in a U.S. Securities and Exchange Commission filing Friday, two days after Representative Darrell Issa, R-Calif., released the same information to the media as part of a congressional probe into the AIG bailout. Issa is the top Republican on the House Committee on Oversight and Government Reform.

AIG didn't immediately returns calls requesting comment.

AIG's filing, called a ``Schedule A,'' includes a table listing dozens of collateralized debt obligations, or CDOs, bought from various AIG counterparties including Goldman Sachs Group Inc., Deutsche Bank, Societe Generale, UBS and Merrill Lynch. The filing says the securities were valued at $62.1 billion as of October 2008. By that time, the securities had fallen sharply in value.

AIG's Maiden Lane business began buying the CDOs in 2008 in an effort to reduce its exposure to insurance-like contracts, called credit default swaps, written to cover defaults on the CDOs.

CDOs are securities backed by pools of mortgages or other assets. They plummeted in value after the credit crisis erupted in 2008 as investors fled all but the safest forms of debt. Credit default swaps are essentially contracts that insure against the default of bonds and corporate debt such as CDOs. Sellers of swaps, such as AIG, are obligated to repay customers if the value of the underlying bonds or debt declines.

As Maiden Lane receives cash from the CDOs, the money is first used to repay the government's portion of the loan. Once that is repaid, AIG's funding for Maiden Lane will be repaid. Any additional money made on ownership of the CDOs will be split between the government and AIG, with the government receiving two-thirds of the excess capital and AIG receiving the rest.