Calling reports in the press misleading, AIG representatives sought to clarify the amount borrowing by the company against its credit line with the Federal Reserve Bank.
During a Risk and Insurance Management Society webinar titled "AIG: An Update On The Latest Strategic Developments," John Doyle president and chief executive officer of AIG Commercial Insurance, said initially, when AIG's problems hit the news, he felt the challenge was to get the message out that the liquidity issues involved the AIG parent company, not AIG Commercial. On that front, he said he believes the company has been successful.
Lately, though, he cited "media hype" as adversely affecting the perception of the company, and he said AIG has also been made a "political object" over the last couple of weeks.
The company made some mistakes, he acknowledged, but he noted that AIG has come to an agreement with the New York attorney general to address those concerns.
Another challenge, he said, has been responding to the numbers coming out regarding how much the company has drawn against its credit line from the Fed.
Robert Schimek, executive vice president and chief financial officer of AIG Property Casualty Group, said media reports have suggested the company has so far borrowed approximately $82.9 billion. But he added that media reports have not made clear that not all of that money has been drawn against the $85 billion dollar facility with the Fed. That line of credit, he said, still has a significant amount of capacity.
Last week, Mr. Schimek said, the company entered into a separate $37 billion securities lending facility with the Fed.
Mr. Schimek explained that AIG securities lending activities occur largely inside of the life insurance operations, and he noted the commercial insurance operations do not participate in those activities. Those life companies, he added, are some of the assets that AIG is in process of selling.
Summarizing the securities lending facility, Mr. Schimek said, in general, financial institutions, including banks, borrow securities from AIG life companies and provide cash collateral to those life companies in return.
The financial institutions that borrow securities expect to be paid an interest rate on cash that they leave on deposit with AIG. The financial institutions will return the securities at a future date and ask for their cash back.
The problem, Mr. Schimek said, was that the life companies invested the financial institutions' money in securities that, today, will not liquidate in the marketplace to generate cash to return to them.
AIG had to borrow against the $85 billion to provide the cash back until, last week, the Fed agreed that, in the future, if a counterparty returns securities, AIG can enter into mirror securities lending transaction with the Fed, and repay the counterparty.
With this agreement in place, Mr. Schimek said the company has no need to draw on the $85 billion line of credit to meet its liquidity needs for the securities lending program. He added it is important to understand the $37 billion did not increase AIG's total outstanding obligations, but rather replaced who the counterparty was on existing securities lending transactions.
Of the nearly $83 billion figure reported in the press regarding how much AIG has borrowed, Mr. Schimek said no more than $70 billion has been against the $85 billion line of credit.
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