8-K/AMaterial AgreementsExhibits & Filings

AMERICAN INTERNATIONAL GROUP, INC. 8-K/A Report, Material Agreement (Mar 16, 2009)

Filed March 16, 2009For Securities:AIG

Summary

This 8-K filing from AMERICAN INTERNATIONAL GROUP, INC. (AIG) on March 16, 2009, provides crucial, albeit complex, information regarding its financial exposure related to credit default swaps (CDS) on multi-sector collateralized debt obligations. The report details an "Amended Shortfall Agreement" between Maiden Lane III LLC and AIG Financial Products Corp., with specific data from Schedule A disclosed for the first time. Investors should pay close attention to the aggregate notional values, collateral posted, and negative mark-to-market figures associated with these complex financial instruments. These figures highlight AIG's significant involvement and potential financial liabilities in the credit derivatives market during a period of extreme market stress. The supplemental information reveals substantial notional values across various counterparties, including major financial institutions like Goldman Sachs, Société Générale, and Deutsche Bank. The "negative mark to market" figures are particularly concerning, indicating the current market value of these CDS positions is unfavorable to AIG, suggesting potential future cash outlays or collateral calls. While collateral has been posted by AIG, the extent of the negative mark-to-market across these substantial notional amounts underscores the ongoing financial risks AIG was facing at the time.

Key Highlights

  • 1Disclosure of an Amended Shortfall Agreement between Maiden Lane III LLC and AIG Financial Products Corp., effective as of November 25, 2008, and amended on December 18, 2008.
  • 2Supplemental data is provided from Schedule A of the Amended Shortfall Agreement, detailing credit default swaps (CDS) on multi-sector collateralized debt obligations.
  • 3Significant aggregate notional values are disclosed for various counterparties, indicating AIG's substantial exposure to these derivative contracts.
  • 4The report itemizes the aggregate total collateral posted by AIG against these CDS positions.
  • 5Crucially, the filing presents aggregate negative mark-to-market values for these CDS, representing the current unfavorable market valuation of these positions.
  • 6Major financial institutions such as Goldman Sachs, Société Générale, Deutsche Bank, and others are listed as counterparties in these CDS transactions.
  • 7Redactions are noted in parts of the Shortfall Agreement exhibit, indicating confidential treatment for certain provisions.

Frequently Asked Questions

The main purpose of this 8-K filing is to disclose an Amended Shortfall Agreement between Maiden Lane III LLC and AIG Financial Products Corp., and to provide supplemental financial data related to AIG's credit default swap (CDS) exposures on multi-sector collateralized debt obligations with various financial institutions.

In this context, 'negative mark to market' refers to the current market value of AIG's positions in these credit default swaps that is unfavorable to AIG. A negative mark-to-market implies that the market has valued these contracts such that AIG would have to pay out money to close out or settle these positions at their current market price, potentially leading to future financial obligations or collateral requirements.

Key counterparties include major financial institutions like Goldman Sachs (with an aggregate notional value of $13.98 billion), Société Générale ($16.42 billion), Deutsche Bank ($8.52 billion), and others. The filing provides the aggregate notional value, collateral posted, and negative mark-to-market for each, showing AIG's substantial financial exposure and its current market valuation for these derivative contracts with each institution.

Maiden Lane III LLC was a special-purpose vehicle created by the Federal Reserve Bank of New York to help AIG manage its complex and risky credit default swap portfolio. The Shortfall Agreement and its amendments likely outline the terms under which Maiden Lane III LLC would assume or manage certain risks associated with AIG's CDS contracts, particularly those related to collateralized debt obligations, during the financial crisis.