AIG (AIG) Unwinds Remaining Sour Trades With Goldman Sachs (GS)
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American International Group Inc.'s (NYSE: AIG) derivatives unit has eliminated most of its soured mortgage trades with Goldman Sachs Group Inc. (NYSE: GS) that were left over after the firm was bailed out by the U.S. government in 2008, according to a report in the Wall Street Journal on Sunday.
The unit, AIG Financial Products, has cut credit-default swaps insuring about $3 billion of Goldman arranged mortgage-asset pools that caused a $1.5 billion to $2 billion in losses last year.
The firm will no longer be hampered by the declines in the value of the mortgage-asset pools, according to sources cited in the report by the Journal.
AIG was forced to hand over billion in cash collateral to banks that had invested in credit-default swaps with the firm, but the reduction of risk to the insurer’s derivatives portfolio is crucial to its stabilization after it received massive government aid to avoid collapse.
In September 2008, AIGFP had around 44,000 outstanding derivative trades on interest rates, currencies and bonds, but has since cut that number to roughly 14,400 with a remain notional value of $770 billion, down from $2 trillion.
At the end of last year, the firm still held $180 billion in CDOs, with the majority coming from relationships with European banks that invested in them for regulatory capital benefits.
The sources cited by the Journal, AIG and Goldman have agreed to eliminated $3 billion in swap contracts, with Goldman keeping $1.5 billion and $2 billion in cash collateral and AIG taking the amount as a loss.
Before AIG nearly collapsed, Goldman had offered to terminate a portion of its mortgage trades with the insurer at market prices, but AIG was cautious of the valuations that Goldman was presenting at the time.
The unit, AIG Financial Products, has cut credit-default swaps insuring about $3 billion of Goldman arranged mortgage-asset pools that caused a $1.5 billion to $2 billion in losses last year.
The firm will no longer be hampered by the declines in the value of the mortgage-asset pools, according to sources cited in the report by the Journal.
AIG was forced to hand over billion in cash collateral to banks that had invested in credit-default swaps with the firm, but the reduction of risk to the insurer’s derivatives portfolio is crucial to its stabilization after it received massive government aid to avoid collapse.
In September 2008, AIGFP had around 44,000 outstanding derivative trades on interest rates, currencies and bonds, but has since cut that number to roughly 14,400 with a remain notional value of $770 billion, down from $2 trillion.
At the end of last year, the firm still held $180 billion in CDOs, with the majority coming from relationships with European banks that invested in them for regulatory capital benefits.
The sources cited by the Journal, AIG and Goldman have agreed to eliminated $3 billion in swap contracts, with Goldman keeping $1.5 billion and $2 billion in cash collateral and AIG taking the amount as a loss.
Before AIG nearly collapsed, Goldman had offered to terminate a portion of its mortgage trades with the insurer at market prices, but AIG was cautious of the valuations that Goldman was presenting at the time.
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