To the surprise of very few, American International Group Inc. (NYSE:AIG) is once again in trouble thanks to its credit default swap positions. This time the company is
warning that falling valuation of swaps sold to European banks could have a "material adverse effect" on the insurer's results.
The new problems come out of AIG's super senior CDS portfolio, which had a notional value of $192.6 billion as of March 31. AIG has been furiously trying to unwind its CDS positions since it had to be bailed out multiple times to the tune of $180 billion by the federal government, a process that it expects to take until late 2010.
AIG didn't name the European banks, citing confidentiality agreements with its counterparties and a dearth of information about debtors on loans tied to the contracts. When the company received its first bailout, the money mostly went to the insurer's counterparties on Wall Street and in Western Europe. AIG
shelled out over $75 billion to Goldman Sachs Group Inc. (NYSE:GS), Merrill Lynch & Co., Morgan Stanley (NYSE:MS), Bank of America Corp. (NYSE:BAC), France's Société Générale SA, Germany's Deutsche Bank AG (NYSE:DB) and Britain's Barclays plc (NYSE:BCS). -
George White
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