GAO 

United States Government Accountability Office

Report to Congressional Committees

TROUBLED ASSET 

RELIEF PROGRAM 

Status of Government 

Assistance Provided 

to AIG 

September 2009 

GAO-09-975 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

September 2009

TROUBLED ASSET RELIEF PROGRAM

Status of Government Assistance Provided to AIG 

Highlights of GAO-09-975, a report to 

congressional committees 

The Federal Reserve and Treasury provided assistance to AIG to limit further 

disruption to financial markets. These agencies determined that market events 

could have caused AIG to fail, which would have posed systemic risk to the 

financial system. According to the Federal Reserve, a disorderly failure of AIG 

would have contributed to higher borrowing costs and additional failures, further 

destabilizing fragile financial markets. The Federal Reserve and Treasury 

determined that an AIG default would place considerable pressure on AIG’s 

counterparties and trigger serious disruptions to an already distressed 

commercial paper market. They concluded that because AIG was a large seller of 

credit default swaps—protection against losses from defaults—on collateralized 

debt obligations (CDO), had AIG failed, its counterparties would have been 

exposed to large losses if the values of the CDOs had continued to decline and 

AIG defaulted on its contracts. The Federal Reserve intended the initial 

September 2008 assistance to enable AIG to meet these added obligations with its 

counterparties and begin the process of selling business lines to raise monies to 

repay the government and resolve other liabilities. Subsequent assistance in 

November 2008 and March 2009 was intended to augment these goals, support 

liquidity needs, and repay FRBNY while mitigating disruptions in the broader 

financial markets. 

To address systemic risk that could result if AIG were to fail, the Federal Reserve 

and Treasury made over $182 billion available to assist AIG between September 

2008 and April 2009. As of September 2, 2009, AIG’s outstanding balance of 

assistance was $120.7 billion. Some federal assistance was designated for specific 

purposes, such as a special purpose vehicle to provide liquidity for purchasing 

assets such as CDOs. Other assistance, such as that available through the 

Treasury’s Equity Facility, is available to meet the general financial needs of the 

parent company and its subsidiaries. The table on the next page provides an 

overview of the total federal assistance to AIG and its related entities. Repayment 

of the $120.7 billion outstanding government exposure is expected to come from 

various sources. As of September 2, 2009, $6.8 billion was paid toward principal 

on the Maiden Lane facilities created by FRBNY to purchase certain AIG assets 

and provide AIG with liquidity. In providing the assistance, the Federal Reserve 

and Treasury have taken several steps intended to protect the government’s 

interest. These include making loans that are secured with collateral, instituting 

certain controls over management, and obtaining compensation for risks such as 

charging interest, requiring dividend payments, and obtaining warrants. Moreover, 

Federal Reserve and Treasury staff routinely monitor AIG’s operations and 

receive reports on AIG’s condition and restructuring. While these efforts are being 

made, the government remains exposed to risks, including credit risk and 

investment risk, which could result in the Federal Reserve and Treasury not being 

repaid in full. 

While federal assistance has helped stabilize AIG’s financial condition, GAOdeveloped indicators suggest that AIG’s ability to restructure its business and 

repay the government is unclear at this time. Indicators of AIG’s financial risk 

suggest that since AIG reported significant losses in late 2008, AIG’s operations, 

with federal assistance, have begun to show signs of stabilizing in mid 2009. 

Similarly, after a declining trend through 2008 and early 2009, indicators of AIG 

insurance companies’ financial risk suggest improved financial conditions that 

were largely results of federal assistance. Indicators of AIG’s repayment of federal 

GAO’s seventh report on the Troubled 

Asset Relief Program (TARP) focuses 

on the initial assistance the 

government provided to American 

International Group, Inc. (AIG)—an 

organization with over 200 companies 

operating in over 130 countries and 

jurisdictions and $830 billion in 

assets—in September 2008 and the 

restructuring of that assistance in 

November 2008 and March 2009. The 

unfolding crisis threatened the stability 

of the U.S. banking system and the 

solvency of a number of financial 

institutions, including AIG. In 

September 2008, downgrades of AIG’s 

credit rating prompted collateral calls 

by counterparties and raised concerns 

that a rapid and disorderly failure of 

AIG would further destabilize the 

markets. As a result, the Board of 

Governors of the Federal Reserve 

System (Federal Reserve) authorized 

the Federal Reserve Bank of New York 

(FRBNY), in consultation with the 

Department of the Treasury (Treasury), 

to provide assistance to AIG. This 

report describes (1) the basis for the 

federal assistance, (2) the nature and 

type of assistance and steps intended 

to protect the government’s interest, 

and (3) selected GAO-developed 

indicators of the status of federal 

assistance and AIG’s financial 

condition. 

To do this, GAO reviewed signed 

agreements and other relevant 

documentation from the Federal 

Reserve, FRBNY, Treasury, and AIG 

and interviewed their officials, among 

others. To develop the indicators, GAO 

reviewed rating agencies’ reports, 

identified critical activities, and 

discussed them with the above named 

agencies and AIG. 

Treasury had no substantive comments 

on the report. It provided technical 

comments along with the Federal 

Reserve, FRBNY, and AIG.

View GAO-09-975 or key components. 

For more information, contact Orice Williams 

Brown at (202) 512-8678 or 

williamso@gao.gov. 
United States Government Accountability Office

Highlights of GAO-09-975 (continued) 

Overview of Federal Assistance Provided to AIG as of September 2, 2009 

Dollar in millions 

Amount of assistance 

authorized 

Description of the federal assistance Debt Equity

Outstanding

balance Sources to repay the government 

Implemented 

Federal 

Reserve

FRBNY created a Revolving Credit Facility to 

provide AIG a revolving loan that AIG and its 

subsidiaries could use to enhance their liquidity. 

In exchange for the facility, for $0.5 million, a 

Treasury trust received Series C preferred stock 

for the benefit of the Treasury, which gave 

Treasury a 77.9 percent voting interest in AIG. 

$60,000a

$38,792.5 Proceeds from dispositions of AIG 

businesses, internal cash flows, and 

restructuring part of the Revolving Credit 

Facility from debt into equity. The initial fee 

paid by AIG was reduced by $0.5 million to 

pay for the Series C shares and will not be 

repaid. 

FRBNY created SPV—Maiden Lane II—to 

provide AIG liquidity by purchasing residential 

mortgage-backed securities from AIG life 

insurance companies. FRBNY provided a loan to 

the SPV for the purchases. It also terminated a 

previously established securities lending 

program with AIG. 

22,500 16,899 Proceeds from the assets in Maiden Lane II 

will be used to repay the FRBNY loan to 

Maiden Lane II. 

FRBNY created a SPV called Maiden Lane III to 

provide AIG liquidity by purchasing CDOs from 

AIG Financial Products’ counterparties in 

connection with termination of credit default 

swaps. FRBNY again provided a loan to the SPV 

for the purchases. 

30,000 20,196 Proceeds from the assets in Maiden Lane 

III will be used to repay the FRBNY loan. 

Treasury Treasury purchased Series D cumulative 

preferred stock from AIG. AIG used the proceeds 

to pay down the Revolving Credit Facility. These 

shares were later exchanged for Series E 

noncumulative preferred shares. Unpaid 

dividends on the series D shares were added to 

the Treasury’s equity in the Series E shares. 

40,000 41,605 Proceeds from dispositions of AIG 

businesses and internal cash flows of AIG. 

Treasury purchased Series F noncumulative 

preferred shares of AIG and is allowing AIG to 

draw up to $29,835 million through an equity 

facility to meet its liquidity and capital needs. 

Amounts drawn by AIG represent the cost of the 

federal equity interest in these shares. 

29,835 3,206bProceeds from dispositions of AIG 

businesses and internal cash flows of AIG. 

Subtotals $112,500 $69,835

Total authorized and outstanding assistancec

$182,335 $120,698.5

Pending AIG created two SPVs to hold the shares of two 

of its foreign life insurance businesses to 

enhance AIG’s capital and liquidity, and to 

facilitate an orderly restructuring of AIG. The 

Revolving Credit Facility will be reduced by the 

amount of preferred equity interest in the SPVs 

to be received by FRBNY. 

0 (25,000d

) 0 Proceeds from the public sale of the SPVs’ 

common stock could be used to buy out the 

federal preferred equity and pay down part 

of the Revolving Credit Facility. 

AIG will create SPVs that will issue up to $8,500 

million in notes to FRBNY, which will be funded 

with a loan from FRBNY. AIG will use the 

proceeds to pay down part of the Revolving 

Credit Facility. 

(8,500d) 0 FRBNY’s loan to the SPVs will be repaid 

from net cash flows of the life insurance 

policies. 

Source: AIG SEC filings, Federal Reserve, and Treasury data. 

a

The facility was initially $85 billion but was reduced to $60 billion in November 2008. 

b

Amount as of September 8, 2009. 

c

Does not include AIG’s participation in the Federal Reserve’s Commercial Paper Funding Facility. 

d

These transactions have not been completed and are not included in the total assistance provided to AIG. The 

amount of the Revolving Credit Facility will be decreased by an equal amount upon completion.

assistance show some progress in AIG’s ability to repay 

the federal assistance; however, improvement in the 

stability of AIG’s business depends on the long-term 

health of the company, market conditions, and continued 

government support. Therefore, the ultimate success of 

AIG’s restructuring and repayment efforts remains 

uncertain. GAO plans to continue to review the Federal 

Reserve’s and Treasury’s monitoring efforts and report on 

these indicators to determine the likelihood of AIG 

repaying the government’s assistance in full and the 

government recouping its investment. 
Page i GAO-09-975 

Contents 

Letter 1

Background 4 

The Federal Reserve and Treasury Provided Assistance to AIG to 

Limit Systemic Risk to the Financial Markets 10 

The Federal Reserve, FRBNY, and Treasury Have Taken a Variety 

of Steps to Stabilize AIG 27 

In Providing Assistance to AIG, the Federal Reserve and Treasury 

Have Taken Steps to Protect the Government’s Interest, but 

Risks Still Remain 36 

Federal Assistance Has Helped Stabilize AIG’s Financial Condition, 

but Indicators Suggest that It Is Too Soon to Evaluate AIG’s 

Ability to Restructure Its Business and Repay the Government 43 

Agency Comments and Our Evaluation 51 

Appendix I Comments from the Department of the Treasury 55 

Appendix II Overview of the American International 

Assurance and American Life Insurance Company 

Transactions 56 

Appendix III Overview of the Executive Compensation 

Restrictions 59 

Appendix IV Summary of Rating Agencies’ Ratings 61 

Appendix V Overview of the AIG Risk and Repayment 

Indicators 62 

Appendix VI GAO Contact and Staff Acknowledgments 91 

Troubled Asset Relief Program 
Related GAO Products 92 

Tables 

Table 1: U.S. Government Efforts to Assist AIG and the 

Government’s Remaining Exposure, as of September 2, 

2009 28 

Table 2: Overview of Indicators of AIG’s Financial Risk and 

Repayment of Federal Assistance 62 

Table 3: Credit Ratings, as of March 31, 2009, and May 15, 2009 64 

Table 4: Sources and Amounts of Available Corporate Liquidity at 

November 5, 2008; February 18, 2009; April 29, 2009; and 

July 29, 2009 67 

Table 5: Composition of U.S. Government Efforts to Assist AIG and 

the Government’s Remaining Exposure, as of September 2, 

2009 (dollars in millions) 84 

Table 6: Dispositions Closed and Agreements Announced but not 

yet Closed, Second Quarter of 2008 through September 5, 

2009 (dollars in millions) 89 

Figures 

Figure 1: AIG Organizational Structure, as of December 31, 2008 6 

Figure 2: Timeline of AIG’s Financial Difficulties and Government 

Actions in Response to Market Turmoil, Fall 2007 to 

September 30, 2008 14 

Figure 3: Timeline of the Restructuring of AIG’s Assistance, Market 

Events, and Related Government Actions, October 1, 

2008, to April 30, 2009 24 

Figure 4: AIG Restructuring and SPV Sale 57 

Figure 5: AIG: Corporate Available Liquidity and Company-Wide 

Debt Projections (dollars in millions), Third Quarter of 

2008 through Second Quarter of 2009 66 

Figure 6: AIG: Trends in and Main Components of Consolidated 

Shareholders’ Equity, Fourth Quarter of 2007 through 

Second Quarter of 2009 68 

Figure 7: AIG’s Operations by Major Segment: Operating 

Income/Loss Before Taxes, First Quarter of 2008 through 

Second Quarter of 2009 70 

Page ii GAO-09-975 Troubled Asset Relief Program
Figure 8: Status of the Winding Down of AIG’s Financial Products 

Corporation, as of September 30, 2008; December 31, 

2008; and March 31, 2009 71 

Figure 9: AIGFP: Super Senior Credit Default Swap Portfolio Net 

Notional Amount, Fair Value of Derivative Liability, and 

Unrealized Market Valuation Gains and Loss, Third 

Quarter of 2008 through Second Quarter of 2009 73 

Figure 10: AIGFP: Gross Notional Value of Underlying Multi-Sector 

Collateralized Debt Obligations That Are Rated Less Than 

BBB, Third Quarter of 2008 through Second Quarter of 

2009 75 

Figure 11: AIG Credit Default Swap Premiums, January 2007 

through July 2009 76 

Figure 12: AIG Insurance Subsidiaries: Regulatory Capital at 

December 31, 2007, and December 31, 2008, and Primary 

Activities That Affected Regulatory Capital During 2008 

(dollars in millions) 77 

Figure 13: AIG Life and Retirement Services: Additions to and 

Withdrawals from Policyholder Contract Deposits 

Including Annuities, Guaranteed Investment Contracts, 

and Life Products, First Quarter of 2007 through Second 

Quarter of 2009 79 

Figure 14: AIG Life Insurance and Retirement Services: Key 

Quarterly Revenues and Expenses, First Quarter of 2007 

through Second Quarter of 2009 80 

Figure 15: AIG General Insurance: Premiums Written by Division, 

First Quarter of 2007 through Second Quarter of 2009 81 

Figure 16: AIG Property/Casualty Insurance: AIG Commercial 

Insurance Operating Ratios and AIG Foreign General 

Insurance Operating Ratios, Second Quarter of 2007 

through Second Quarter of 2009 83 

Figure 17: FRBNY Revolving Credit Facility Balance Owed and 

Total Amount Available, October 2008 through September 

2009 86 

Figure 18: Principal Owed and Portfolio Values of Maiden Lane 

Facilities 87 

Figure 19: Proceeds from Dispositions by Quarter, Second Quarter 

of 2008 through September 5, 2009 88 

Page iii GAO-09-975 Troubled Asset Relief Program
Abbreviations 

AGF American General Finance, Inc. 

AIA American International Assurance Company, Ltd. 

AIG American International Group, Inc. 

AIGFP AIG Financial Products Corporation 

ALICO American Life Insurance Company 

ARRA American Recovery and Reinvestment Act or 2009 

CDO collateralized debt obligation 

CDS credit default swaps 

CPFF Commercial Paper Funding Facility 

FDIC Federal Deposit Insurance Corporation 

FRBNY Federal Reserve Bank of New York 

ILFC International Lease Finance Corporation 

NAIC National Association of Insurance Commissioners 

OFS Office of Financial Stability 

OTS Office of Thrift Supervision 

RBC risk-based capital 

RMBS residential mortgage-backed security 

S&P Standard & Poor’s 

SEC Securities and Exchange Commission 

SIGTARP Special Inspector General for the Troubled Asset 

 Relief Program 

SPV special purpose vehicle 

SSFI Systemically Significant Failing Institutions 

TARP Troubled Asset Relief Program 

the act Emergency Economic Stabilization Act of 2008 

TLGP Temporary Liquidity Guarantee Program 

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page iv GAO-09-975 Troubled Asset Relief Program
Page 1 GAO-09-975 

 

United States Government Accountability Office

Washington, DC 20548 

 

September 21, 2009 

Congressional Committees: 

The United States is experiencing a financial crisis that has threatened the 

stability of not only the U.S. banking system but also the U.S. and global 

economies and the solvency of a number of critical banks and nonbank 

institutions. Consequently, over the past year and a half, the U.S. 

government has taken extraordinary measures. The Emergency Economic 

Stabilization Act of 2008 (the act) created the Office of Financial Stability 

(OFS) within the Department of the Treasury (Treasury) and authorized 

the Troubled Asset Relief Program (TARP) to address the crisis.1

 In 

addition, Treasury collaborated with the Board of Governors of the 

Federal Reserve System (Federal Reserve) to provide government 

assistance to institutions it deemed to be systemically significant to avoid 

further disruptions in the financial markets that could result from their 

failure. 

American International Group, Inc. (AIG) is one of the largest recipients of 

government assistance. The Federal Reserve and the Federal Reserve 

Bank of New York (FRBNY), in consultation with Treasury, initially 

provided assistance to AIG in September 2008 following its rating 

downgrade, which had prompted collateral calls by its counterparties and 

raised concerns that a rapid failure of the company would further 

destabilize financial markets. However, AIG’s condition continued to 

decline. In November 2008, the Federal Reserve and Treasury announced 

plans to restructure AIG’s federal assistance to further strengthen its 

financial condition and, once again, avert the failure of the company. In 

March 2009, the Federal Reserve and Treasury provided additional 

assistance and further restructured the terms of the existing assistance. As 

a result of these actions, the federal government has an almost 80 percent 

interest in AIG. 

1

The Emergency Economic Stabilization Act of 2008 (the act), Pub. L. No. 110-343, 122 Stat. 

3765 (2008), codified at 12 U.S.C. §§ 5201 et seq. The act originally authorized Treasury to 

purchase or guarantee up to $700 billion in troubled assets. The Helping Families Save 

Their Homes Act of 2009, Pub. L. No. 111-22, Div. A, 123 Stat. 1632 (2009), amended the act 

to reduce the maximum allowable amount of outstanding troubled assets under the act by 

almost $1.3 billion, from $700 billion to $698.741 billion. 

Troubled Asset Relief Program 
 

The act requires GAO to provide oversight of actions taken under TARP. 

To fulfill our responsibilities, we have been monitoring and providing 

timely reporting on Treasury’s assistance to AIG—the largest participant 

in TARP and currently the sole participant in TARP’s Systemically 

Significant Failing Institutions (SSFI) Program.2

 We testified on the status 

of this government effort in March 2009.3

 Because the government 

assistance to AIG is a coordinated approach, we are also monitoring the 

efforts of the Federal Reserve. Our ability to review the Federal Reserve’s 

assistance was recently clarified by the Helping Families Save Their 

Homes Act of 2009, enacted on May 20, 2009, which provided GAO 

authority to audit Federal Reserve actions taken under section 13(3) of the 

Federal Reserve Act for “a single and specific partnership or corporation.”4

Among other things, this amendment provides GAO with authority to audit 

Federal Reserve actions taken with respect to three entities also assisted 

under TARP—Citigroup, Inc.; AIG; and Bank of America Corporation. This 

amendment also gave GAO the authority to access information from 

entities participating in TARP programs, such as AIG, for purposes of 

reviewing the performance of TARP. 

GAO is required to report at least every 60 days on the activities and 

performance of TARP.5

 This 60-day report provides an overview of (1) the 

 

2

Treasury created SSFI to provide capital to institutions on a case-by-case basis to provide 

stability and prevent disruption to financial markets caused by the failure of a systemically 

significant institution. 

3

See GAO, Federal Financial Assistance: Preliminary Observations on Assistance 

Provided to AIG, GAO-09-490T (Washington, D.C.: Mar. 18, 2009). 

4

Section 801 of The Helping Families Save Their Homes Act of 2009, Pub. L. No. 111-22, Div. 

A, 123 Stat. 1632, 1662 (2009), amended the Federal Banking Agency Audit Act, §2, 31 

U.S.C. § 714 (2006), which limits GAO’s authority to audit certain Federal Reserve 

activities. Specifically, GAO’s audits of the Federal Reserve generally may not include 

monetary policy matters, including discount window operations and open market 

operations. 

5

For our past 60-day reports, see GAO, Troubled Asset Relief Program: Additional Actions 

Needed to Better Ensure Integrity, Accountability, and Transparency, GAO-09-161

(Washington, D.C.: Dec. 2, 2008); Troubled Asset Relief Program: Status of Efforts to 

Address Transparency and Accountability Issues, GAO-09-296 (Washington, D.C.: Jan. 30, 

2009); Troubled Asset Relief Program: March 2009 Status of Efforts to Address 

Transparency and Accountability Issues, GAO-09-504 (Washington, D.C.: Mar. 31, 2009); 

Auto Industry: Summary of Government Efforts and Automakers’ Restructuring to Date, 

GAO-09-553 (Washington, D.C.: Apr. 23, 2009); Troubled Asset Relief Program: June 2009 

Status of Efforts to Address Transparency and Accountability Issues, GAO-09-658

(Washington, D.C.: June 17, 2009); and Troubled Asset Relief Program: Treasury Actions 

Needed to Make the Home Affordable Modification Program More Transparent and 

Accountable, GAO-09-837 (Washington D.C.: July 23, 2009). 

Page 2 GAO-09-975 Troubled Asset Relief Program
 

basis for the Federal Reserve’s and Treasury’s assistance to AIG, (2) the 

nature and type of assistance provided to AIG, (3) the steps taken by the 

Federal Reserve, FRBNY, and Treasury that are intended to protect the 

government’s interest and remaining risks, and (4) the status of federal 

assistance and GAO-developed indicators of AIG’s financial condition. 

To address the first three objectives—describing both the basis for federal 

assistance to AIG and the nature and type of assistance provided to AIG—

we reviewed relevant documents from the Federal Reserve and FRBNY; 

recent congressional testimonies on AIG; reports from the Federal 

Reserve, FRBNY, Treasury, and the Special Inspector General for the 

Troubled Asset Relief Program (SIGTARP); and several GAO reports on 

AIG and TARP to obtain information on how the Federal Reserve and 

Treasury became involved with AIG, the general goals of the federal 

assistance, the nature of the assistance, and how the assistance was 

restructured. We also conducted numerous interviews with officials and 

staff from the Federal Reserve, FRBNY, Treasury, the National Association 

of Insurance Commissioners (NAIC), three state insurance regulators with 

major roles in regulating AIG’s insurance companies, two industry 

observers, and three rating agencies to understand the government’s 

involvement and the condition of the financial markets and the insurance 

industry at the time of AIG’s request for assistance. In addition, we 

reviewed AIG’s annual and quarterly accounting and financial filings 

(10Ks, 10Qs) with the Securities and Exchange Commission (SEC) to 

describe the evolving financial condition of AIG and factors affecting AIG’s 

financial condition.6

 Furthermore, we reviewed federal laws for 

information about the legal framework of the assistance. We also reviewed 

studies from NAIC, academics, and rating agencies. 

To assess AIG’s financial condition, we developed a set of indicators of 

AIG’s financial condition and the status of federal assistance to AIG. We 

reviewed reports by several credit rating agencies on how they rate longterm and short-term debt and financial strength. We also interviewed 

officials and staff from the Federal Reserve, Treasury, and AIG about 

 

6

Companies such as AIG that have publicly traded stock listed on the domestic stock 

exchanges are required to timely file reports with SEC under the Securities Exchange Act 

of 1934. The annual Form 10K gives a comprehensive overview of the company’s business 

and financial condition and includes audited financial statements. The quarterly Form 10Q 

includes unaudited financial statements and provides a continuing view of the company's 

financial position during the year. The Form 8K is the current report companies use to 

report certain material corporate events as they occur. 

Page 3 GAO-09-975 Troubled Asset Relief Program
 

possible indicators. No single indicator provides a definitive measure of 

AIG’s progress, and indicators should be considered collectively. We 

selected indicators that appeared to track the most critical activities 

related to the goals for federal assistance to AIG. The resulting indicators 

address several dimensions of AIG’s business, including its credit ratings, 

operating performance, capital, debt repayment, and liquidity. The data 

used to create the indicators came from several sources, but most are 

based on publicly available information, such as AIG’s 10K and 10Q filings 

and NAIC reports. Specifically, AIG’s SEC filings provided information on 

its credit ratings, liquidity, debt, shareholders’ equity, operating income, 

credit default swap (CDS) portfolio, collateralized debt obligations 

(CDOs), additions to and withdrawals from AIG life and retirement 

policyholder contracts, and insurance premiums. In congressional 

testimony, AIG provided information about its planned restructuring, 

including its divestiture plans and the winding down of its CDS portfolio. 

We used Thomson Reuters Datastream to collect information about AIG’s 

CDS premiums over time. In addition, NAIC sources provided information 

on regulatory capital and primary activities affecting stockholders’ equity 

for AIG’s insurance subsidiaries. AIG also provided information on credit 

ratings, revenues, and expenditures on AIG’s life and retirement services, 

AIG’s property/casualty operation ratios, and AIG business unit 

divestitures and asset sales. Rating agencies provided information on 

credit ratings. Finally, Federal Reserve reports provided information on 

the FRBNY Revolving Credit Facility and the Maiden Lane facilities. We 

assessed the reliability of the data and found that the data were 

sufficiently reliable for our purposes. 

We conducted this performance audit from March 2009 to September 2009 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. 

Background 

AIG Operations AIG is a holding company that, through its subsidiaries, is engaged in a 

broad range of insurance and insurance-related activities in the United 

States and abroad, including general insurance, life insurance and 

retirement services, financial services, and asset management. AIG 

Page 4 GAO-09-975 Troubled Asset Relief Program
 

comprises at least 223 companies and has operations in over 130 countries 

and jurisdictions worldwide (see fig. 1). As of June 30, 2009, AIG had 

assets of approximately $830 billion and $50 billion in revenues for the 6 

preceding months, and AIG and its subsidiaries had 106,000 employees. 

The AIG organization includes the largest domestic life insurer and the 

second-largest domestic and property/casualty insurer in the United 

States, and it has a large foreign general insurance business. Figure 1 

illustrates the complexity of AIG and its subsidiaries. 

Page 5 GAO-09-975 Troubled Asset Relief Program
 

Figure 1: AIG Organizational Structure, as of December 31, 2008 

98.5%

AIG Polska Towarzystwo

Ubezpieczen SpolkaAkcyyjna

100%

National Union Fire Insurance Company

of Pittsburgh, Pa.

100%

National Union Fire Insurance

Company of Louisiana

National Union Fire Insurance

Company of Vermont

AIG Domestic Claims, Inc.

50%

JI Accident & Fire Insurance

 Company, Ltd.

70%

Lexington Insurance Company

N

100%

AIG Auto Insurance Company

 of New Jersey

AIG Preferred Insurance

Company

100%

AIG Indemnity Insurance

Company

100%

AIG Centennial Insurance

 Company

100%

AIG Premier Insurance Company

70%

American International Specialty

Lines Insurance Company

N

100%

AIG Lodging Opportunities, Inc.

100%

AIG Excess Liability Insurance International

Limited

75%

American International Insurance Company

100%

AIG Advantage Insurance Company

American International Insurance Company

of California, Inc.

American International Insurance Company

of New Jersey

B

C

American International Group, Inc.

100%

21st Century Casualty Company

21st Century Insurance Company

21st Century Insurance Company of the

Southwest

100%

AIG Excess Liability Insurance

Company Ltd.

100%

Global Standards,LLC

100%

The Hartford Steam Boiler Inspection

and Insurance Company

of Connecticut

100%

EIG , Co.

100%

HSB Engineering Insurance Limited

100%

The Boiler Inspection and Insurance

Company of Canada

100%

United Guaranty Commercial

Insurance Company of North Carolina

United Guaranty Credit

Insurance Company

United Guaranty Mortgage

Indemnity Company

100%

A.I.G. Mortgage Holdings Israel, Ltd.

45.88%

United Guaranty Corporation

P

100%

E.M.I. - Ezer Mortgage Insurance

Company Ltd.

100%

AIG Centre Capital Group, Inc.

AIG Mortgage Risk Solutions

Pty Ltd.

AIG United Guaranty Agenziadi

AssicurazioneS.R.L.

AIG United Guaranty Insurance

(Asia) Limited

AIG United Guaranty Mortgage

Insurance Company Canada

AIG United Guaranty Re, Ltd.

AIG United Guaranty,Sociedad

Limitada

United Guaranty Direct Insurance

Services, Inc.

United Guaranty Services, Inc.

United Guaranty Insurance Company

United Guaranty Mortgage Insurance

Company

United Guaranty Mortgage Insurance

Company of North Carolina

United Guaranty Partners Insurance

Company

United Guaranty Residential

Insurance Company of North Carolina

65.93%

Educational Loan Servicing,LLC

100%

Ra-Hart Investment Company

100%

HSB Professional Loss Control, Inc.

75.03%

United Guaranty Residential Insurance

Company

100%

Transatlantic Reinsurance Company

33.24%

Transatlantic Holdings, Inc.

100%

Putnam Reinsurance Company

Trans Re Zurich

100%

American Home Assurance Company

100%

American Pacific Insurance Company,

Inc.

93.33%

AIG Hawaii Technology Solutions,

LLC

D

99.88%

AIG HawaiiLTC Solutions,

LLC

E

100%

AIG Hawaii Insurance Company, Inc.

100%

AIG Non-Life Holding Company (Japan),

Inc.

19.8%

Fuji Fire & Marine Insurance Company

Limited

100%

American Fuji Fire & Marine Insurance

Company

Fuji Life Insurance Company, Limited

Fuji International Insurance Company,

Limited

100%

New Hampshire Insurance Company

100%

New Hampshire Indemnity Company, Inc.

100%

AIG National Insurance

Company, Inc.

100%

AI Network of Nevada, Inc.

American International Pacific

Insurance Company

American International South

Insurance Company

Granite State Insurance Company

Illinois National Insurance Co.

New Hampshire Insurance Services, Inc.

 G

100%

Audubon Insurance Company

100%

Agency Management Corporation

100%

Audubon Indemnity Company

100%

The Gulf Agency, Inc.

F

100%

AIG General Insurance (Malaysia)

Berhad

100%

LSP HoldingsLLC

100%

A100 LLC

100%

HSB Group, Inc.

100%

The Hartford Steam Boiler Inspection and

Insurance Company

100%

American International Insurance Company of

Delaware

A.I.G. Managing General Agency, Inc.

AIG Marketing, Inc.

100%

AIG Commercial Insurance Group, Inc.

100%

AIG Property Casualty Group, Inc.

100%

The Insurance Company of the

State of Pennsylvania

Landmark Insurance Company

AIG Casualty Company

AIG Commercial Insurance

Company of Canada

32.09%

21st Century Insurance Group

O

100%

Commerce and Industry Insurance Company

13.76%

Eastgreen, Inc.

99.96%

United Guaranty Servicios

Administrativos, S. de R.L. de C.V.

R

 H

100%

AIG Aviation, Inc.

31.5%

American International Realty Corp.

 I

100%

AIG LS HoldingsLLC

100%

AIG Life SettlementsLLC

31.47%

Pine Street Real Estate HoldingsCorp.

J

Q

40%

Kuwait Reinsurance Company

(K.S.C )

99.999%

AIG United Guaranty Mexico,S.A.

100%

AIG Hawaii Technologies, Inc.

19.72%

AIG Metropolitana Compania de

Segurosy ReasegurosS.A.

100%

A.I. Risk Specialists Insurance, Inc.

100%

Risk Specialists Companies, Inc.

K

S

60.96%

P.T.AsuransiAIU Indonesia

100%

Morefar Marketing, Inc.

80%

P.T. AIG Life

100%

Union Excess Reinsurance Company, Ltd.

100%

American Life Insurance Company

100%

AIG HayatSigorta A.S.

AIG Life (Ireland) Limited

AIG Life (Bulgaria)ZZD , EAD

AIG LifeAsigurari RomaniaSA

AHICO Elso Amerikai MagyarBiztosito Zrt..

American Life Insurance Company Gestora de

Fondosy Planos de PensionesS.A.

ALICO S.A.

ALICO Compania de Seguros de VidaS.A.

ALICO Properties Inc., II

AIG Management (UK) Limited

Fondosy Planos de PensionesS.A.

First American Czech Insurance Company,A.S.

International Investment Holding

Company Limited (Russia)

Zeus Administration Services Limited

AMSLICO AIG Lifepoist'ovna a.s.

61.84%

American Life Insurance Company (Pakistan)

Limited

80.92%

American Life and General Insurance Company

(Trinidad and Tobago) Ltd.

92.7853%

Seguros Venezuela,C.A.

50%

InversionesInversegven, C.A.

99.99%

InversionesInteramericanaS.A.

BB

100%

LaInteramericana Compania de Seguros

deVidaS.A.

90%

Alico Compania de Seguros de Retiros

ALICO Compania de SegurosS.A.

100%

First American Polish Life Insurance and

Reinsurance Company S.A.

74.875%

Pharaonic American Life Insurance Company

27.5%

Hellenic ALICO Life Insurance Company Ltd.

99.99%

CJSC American Life Insurance

Company AIG Life

GG

100%

AIG Financial Assurance JapanK.K.

40%

UBB-AIG Life Insurance Company JSC

60%

IBCO Gestao de Patrimonios, S.A.

100%

Philam Insurance Company, Inc.

Philam Plans, Inc.

Pacific Union Assurance Company

99.78%

ThePhilippine American Life &

General Insurance Company

95%

Philam Equitable Life Assurance Company, Inc.

W

100%

American International Reinsurance Company,

Ltd.

100%

American International Assurance Company

Ltd.

60.96%

P.T.AsuransiAIA Indonesia

100%

AIG Life Holdings (International)LLC

49%

AIG MexicoSegurosInteramericana, S.A.

deC.V.

100%

AIG-Cuidando tu Salud, S.A. de C.V.

100%

American International Assurance

Company (Bermuda) Ltd.

100%

AIG Life Insurance (Vietnam)

Company Limited

AIG Global Investment Corporation

(Asia) Ltd.

AIA (Bermuda) Services, Inc.

Grand Design Development Limited

26%

Tata AIG Life Insurance

Company Ltd.

100%

AIG Star Life Insurance Co., Ltd.

50%

AIG PowszechneTowarzystwo EmerytalneS.A.

100%

Equitable Investment Co. (Hong Kong) Ltd.

100%

SEA Insurance Co. Limited

SEA InsuranceSendirian Berhad

50.01%

AIG Israel Insurance Company Ltd.

99.99%

LaInteramericana Compania de Seguros

GeneralesS.A. (Chile)

100%

Caravan Investment Inc.

51%

AIG Caspian Insurance Company

49%

AIG Ukraine

100%

AIG Global Services, Inc.

100%

American International Group KK

15%

Russian Reinsurance Company OAO

51%

Uzbek American Insurance Company

100%

AIG Life InternationalLtd.

American International Assurance

Company (Australia) Ltd.

AIRCO Finance Co. Ltd.

26%

Prime Property Y.K.

100%

Gemini Property Y.K. NN

100%

AIU North America, Inc.

AIG Federal Savings Bank

AIG Funding, Inc.

AIG Castle HoldingsLLC

AIG Castle Holdings IILLC

AIG Life Insurance Company (Switzerland), Ltd.

American Security Life Insurance Company, Ltd.

Delaware American Life Insurance Company

100%

AIG Privat Bank AG

100%

AIG Trading Group, Inc.

100%

AIG International, Inc.

Y

MM

95.27%

NanShan Life Insurance Company, Ltd.

100%

AIG VitaS.p.A.

95%

AgenvitaS.r.l.

20%

Prime Ocean YK

AA

100%

Borderland Investments Limited

100%

AIG LifeHellas Representation and Consulting

Services

50%

ALICO AIGE, A.I.E.

60%

AIG Kazakhstan Insurance Company,S.A.

100%

ZAO "Master D"

51%

CJSC AIG Life Insurance Company (Russia)

100%

ALICO European Holdings Limited (Ireland)

99.99%

AIG Mexico,Compania de Seguros de Vida, S.A.

deC.V.

94.99%

AIG ColombiaSeguros de Vida, S.A.

99.99%

AIG LifeOsiguranje A.D.O.Beograd

100%

American International AssuranceBhd

LC Ventura (Tampines) Pte Ltd

64.55%

Metropolitan Land Company, Limited

100%

Virgo Property YK

49%

P.C.-AIA Co. Ltd.

84%

American International Data

Centre Limited

100%

AIG Clearing Corporation

T

U

V

LL

90%

ALICO AIG Mutual Fund Management Company

S.A.

CC

DD

EE

FF

BB

HH

II

JJ

KK

10%

AIG Edison Life Insurance Company

X

40%

American International Company, Limited

Z

Page 6 GAO-09-975 Troubled Asset Relief Program
 

Troubled Asset Relief Program

 

Page 7 GAO-09-975 

100%

HPIS Limited

100%

AIG Global Real Estate InvestmentCorp.

2%

AIG Mexico Industrial I,L.L.C.

100%

AIG Capital Corporation

E

100%

AIG Central Europe & CIS Insurance Holdings

Corporation

100%

AIG Bulgaria Insurance Company EAD

AIG Czech Republic pojistovna, a.s.

AIG Romania Insurance Company S.A.

100%

AIU Africa Holdings, Inc.

80%

 AIG Hayleys Investment Holdings

(Private) Ltd.

100%

AIG MEMSA Holdings, Inc.

26%

Tata AIG General Insurance

 Company Limited

100%

AIG Lebanon S.A.L.

AIG Sigorta A.S.

66.67%

AIG Kenya Insurance Company, Limited

100%

AIU Holdings LLC

40%

UBB-AIG Insurance and Reinsurance

Company JSC

100%

AIG Global InvestmentCorp.

AIG Ports America, Inc.

AIG Securities Lending Corp.

100%

AIG Global Asset Management

HoldingsCorp.

100%

AIG Consumer Finance Group, Inc.

99.92%

AIG Bank PolskaS.A.

99.15%

AIG Retail Bank

 Public Company Limited

100%

AIG Consumer Finance Group

 (Asia) Limited

CompaniaFinanciera Argentina S.A.

67.23%

International Lease Finance Corporation

100%

AIG Finance Holdings, Inc.

100%

AIG Finance (Hong Kong), Limited

G

100%

A.I.CreditCorp.

100%

AIG CreditCorp.

100%

AIG Equipment Finance Holdings, Inc.

100%

AIG Commercial Equipment Finance, Inc.

AIG Rail Services, Inc.

100%

AIG Retirement Services, Inc.

100%

SunAmerica Life Insurance Company

100%

AIG SunAmerica Life Assurance Company

100%

AIG SunAmerica Asset ManagementCorp.

100%

SunAmerica (Cayman) Insurance

Company, Ltd.

100%

SunAmerica Investments, Inc.

100%

AIG Advisor Group, Inc.

100%

FirstSunAmerica Life

Insurance Company

SA Affordable Housing,LLC

33%

New California Life Holdings, Inc.

100%

Advantage Capital Corporation

American General Securities

Incorporated

Financial Service Corporation

Royal Alliance Associates, Inc.

SagePoint Financial Advisors, Inc.

100%

American International Underwriters Overseas,

Ltd.

100%

AIG Ireland Limited

AIG General Insurance (Thailand) Ltd

AIG General Insurance (Vietnam)

Company Limited

AIG Memsa InsuranceCompany Ltd.

AIG ReInsuranceServices Office

AIG Takaful - EnayaB.S.C.

AIG Uganda Limited

AIG Uruguay Compania de SegurosS.A.

American Asiatic Underwriters, Limited

American International Insurance Company

of Puerto Rico

American International Underwriters

Overseas,I.I.

American International Underwritersde

Colombia,Ltda.

American International Underwriters

(Philippines), Inc.

Arabian American Insurance

 Company (Bahrain)E.C.

Informatica y Servicios LATEC, S.A.

S.J. Zevlaris Insurance Agency Co. Limited

Underwriters Adjustment Company, Inc

[Panama]

99.93%

LaMeridional Compania Argentina de

SegurosS.A.

100%

Hayleys AIG Insurance Company Ltd.

100%

AIG European Insurance Investments Inc.

100%

Ascot Corporate Name Limited

100%

Johannesburg Insurance Holdings (Pty)

Limited

100%

AIG Life South Africa Limited

AIG South Africa Limited

50%

Hellas Insurance Co.S.A.

20%

Uzbekinvest International Insurance

Company Limited

50%

Inversiones Segucasai, C.A.

93.38%

C.A. de Seguros American International

95.02%

AIG Brasil Companhia de SegurosS.A.

100%

Richmond Insurance Company

(Barbados) Ltd.

100%

Richmond Insurance Company Limited

20.1%

ElPacifico-Peruano Suiza Compania de

SegurosS.A.

61.99%

ElPacifico VidaCompania

y Reaseguros

C

100%

AIG Realty, Inc.

AIG Global Real Estate Asia

Pacific, Inc.

100%

Sierra Leasing Ltd.

100%

AircraftSPC-9, Inc.

100%

AircraftSPC-12, Inc.

100%

Whitney Leasing Limited

100%

AIU Latin America Investments,LLC

85.02%

GaranplusS.A. de C.V.

61.75%

AIG UK Holdings Ltd.

100%

AIG UK Financing Limited

100%

AIG UK Sub Holdings Limited

100%

AIG (UK) Limited

100%

AIG UK Services Limited

100%

AIG Germany Holding GmbH

100%

Wurttembergerische und Badische

Versicherungs-AG

100%

DARAG Deutsche Versicherungs-und

Ruckversicherungs-Aktiengesellschaft

A

100%

American General Finance, Inc. [IN]

100%

American General Financial Services

of America, Inc. [DE]

100%

American General Home

Equity, Inc. [DE]

100%

American General Consumer

Discount Company

American General Financial

Services of Illinois, Inc.

American General Financial

Services, Inc. [DE]

American General Financial

Services, Inc. [IN]

American General Financial

Services, Inc.[NC]

American General Financial

Services, Inc. [OH]

American General Financial Services,

Inc. [SC]

American General Financial

Services, Inc. [TX]

American General Financial

Services, Inc. [WA]

Merit Life Insurance Co.

Ocean Finance and Mortgages Limited

Yosemite Insurance Company

100%

American General Finance Corporation [IN]

100%

American General Finance Services of

Alabama, Inc.

100%

MorEquity, Inc. [NV]

100%

Wilmington Finance, Inc.

100%

AIU Far East Insurance Holdings, Inc.

100%

AIU Far East Holdings,KK

35%

AIP KK

94%

A.I.G.ColombiaSegurosGeneralesS.A.

100%

AIU Insurance Company

100%

AIG General Insurance Company

China Limited

AIG General Insurance (Taiwan) Co., Ltd.

100%

UNAT Direct Insurance

Management Limited

10%

Inversora Pichincha S.A.Compania

deFinanciamiento Comercial

100%

AIG Holding Andes 1, Inc

50%

Global Information Services Ltd.

100%

Hospital Plan Insurance Services

100%

AIG Travel, Inc.

99.99%

AIG Seguros de Personas,S.A.

99.99%

AIG Union y Desarrollo, S.A.

94.98%

AIG Egypt Insurance Company S.A.E.

100%

SunAmerica Capital Services, Inc.

100%

American International Underwriters Corporation B

D

F

51%

AIG Uzbekinvest Limited

50%

Latin American Investment Guarantee

 Company, Ltd.

100%

AIG Global Trade & Political Risk

 Insurance Company

100%

LaSeguridad de Centroamerica,

Compania de SegurosS.A.

98.33%

LaSeguridad de Centroamerica, Compania

deFianzas, S.A.

T

99%

AIG Insurance (Guernsey)PCC Limited

U

100%

Pacifico S.A.EmpresaPrestadora

deSalud

V

99%

AIG Insurance (Guernsey)PCC Limited

67%

AIG General Insurance (Malaysia)

Berhad

W

100%

ZAO AIG Insurance &

Reinsurance Company

AIG Europe (Netherlands)N.V.

91.32%

AIG Europe,S.A.

2.72%

AIG Europe Holdings Limited

 X

100.00%

AIG Luxembourg Financing Limited.

Y

100%

AIG Life Holdings (US), Inc.

100%

AGC Life Insurance Company

100%

American General Life and Accident

Insurance Company

100%

AIG Life of Bermuda, Ltd.

100%

AIG Worldwide Life Insurance of

Bermuda, Ltd.

100%

American General Life Insurance

Company

100%

American General Property

Insurance Company of Florida

100%

AI Life Settlement, Inc.

American GeneralBancassuranceServices, Inc.

Knickerbocker Corporation

100%

American General Property

Insurance Company

100%

AIG Life Holdings

(Canada),ULC

100%

AIG Assurance Canada

100%

Rokland Limited

100%

American General Annuity Service

Corporation

AIG Enterprise Services,LLC

American General Equity Services

Corporation

American General Life Companies,

LLC

The Variable Annuity Life

Insurance Company

Pine Vermont Reinsurance Company

100%

Volunteer Vermont Holdings,LLC

Volunteer Vermont Reassurance

Company

100%

AIG Financial Products Corp.

79%

Sorbier Holding Corp.

90%

Banque AIG S.A.

100%

NF One Hundred and Twenty-Three Corp.

100%

Applewood Funding Corp.

AIG Energy, Inc

AIG Financial Products (Australia) Ltd.

AIG Matched Funding Corp.

AIG-FP Matched Funding Corp.

AIG-FP Private Fuding Corp.

AIG-FP Private Funding (Cayman) Limited

Bignonne Investments One LLC

Bluewood InvestmentLLC

DBY One,LLC

Hickory Holding Corp.

International Investment Company

(Bermuda) Limited

LSPSenior Lending LLC

Orangewood Investments LLC

Yellowwood InvestmentLLC

100%

AIG-FPPinestead HolidngsCorp.

100%

Alberti Holding Company

Cedarstead InvestmentCorp.

Pinestead InvestmentCorp.

Willowgrove Finance Company Limited

100%

AIG-FPPinestead Holidng III Corp.

100%

AIG-FP Investment Company (Bermuda) Limited

100%

AIG-FP Funding (Cayman) Limited

AIG-FPSpecial Finance (Cayman) Limited

NF Thirteen (Cayman) Limited

100%

AIG-FP Capital Preservation Corp.

91%

Bullfinch Investments (Cayman) Limited

100%

Bittern Investments Corp.

100%

Flamebright Investment Limited

100%

AIG Financial Products (Jersey) Limited

100%

DukesCorp.

100%

Cloudview (Cayman)Limted

Skyview (Cayman) Limited

Skyview3 (Cayman) Limited

100%

Stoneland Limited

100%

Peachwood Funding Corp.

100%

Peachwood LLC

100%

Swallow InvestmentsLLC

100%

Brambling Investments LLC

100%

Pearwood Funding Corp

100%

Pearwood LLC

100%

Sorbier InvestmentCorp.

79%

Lakevista Holdings Corp.

21%

Lakevista Corp.

100%

AIG-FP Holdings Corp.

100%

TMS Investments LLC

100%

TMSSub LLC

100%

Clarges Funding LLC

79%

NF Fifty-Eight Corp.

21%

Heathwood Holding Corp.

100%

Heathwood Corp.

100%

AIG-FPStructured Finance (Cayman) Limited

H

I

J

M

O

P

Q

100%

AIG Life Insurance Company

 of Canada

25.294%

Spicer Energy II LLC

100%

Ambler Holding Corp.

R

100%

American General Assurance Company

100%

American General Indemnity Company

99%

AIGFPNZ Funding LLC

100%

Avon HoldingsCorp

100%

AvonLLC

100%

Avon Financing Corp.

10%

Elgibright Investment Limited

100%

Nerine Finance No. 3

100%

Highfield Holding Corp.

100%

Highfield LLC

99%

Cherrywood Investments LLC K

100%

AIG Annuity Insurance Company

AIG Life Insurance Company

American International Life Assurance

Company of New York

The United States Life Insurance Company

in the City of New York

44%

Iris Energy,LLC

L

S

N

Source: Schedule Y of the 2008 Annual Statements filed by AIG's insurance companies with NAIC.

Page 7 GAO-09-975 
 

AIG was a large issuer of commercial paper, a mortgage lender, and 

through AIG Financial Products Corporation (AIGFP)—a financial 

products subsidiary that engaged in a variety of financial transactions, 

including standard and customized financial products—a participant in the 

derivatives market.7

 AIGFP has been a key source of AIG’s financial 

difficulties. As of June 30, 2008, AIG’s business included an estimated $15 

billion of outstanding commercial paper and the company sold CDS with 

$447 billion gross notional exposure on CDOs.8

 Additionally, AIG 

maintained a large securities lending program operated by its insurance 

subsidiaries. The securities lending program allowed insurance 

companies, primarily the life insurance companies, to lend securities in 

return for cash collateral that was invested in residential mortgage-backed 

securities (RMBS). This program was another major source of AIG’s 

liquidity problems in 2008. 

Aspects of AIG and its subsidiaries are regulated by federal and state 

authorities. The Office of Thrift Supervision (OTS) is the consolidated 

supervisor of AIG, which is a thrift holding company by virtue of its 

ownership of AIG Federal Savings Bank. As the consolidated supervisor, 

OTS is charged with identifying systemic issues or weaknesses and 

ensuring compliance with regulations that govern permissible activities 

and transactions.9

 In recent testimony, OTS said that it supervised and 

assessed AIG as a conglomerate and communicated with other functional 

regulators and supervisors that share jurisdiction over portions of the 

conglomerate.10 AIG’s domestic and life and property/casualty insurance 

companies are regulated by the state insurance regulators in which these 

companies are domiciled.11 These state agencies regulate the financial 

solvency and market conduct of these companies within their states and 

 

7

Corporations primarily issue commercial paper, which are short-term promissory notes. 

8

CDS are bilateral contracts that are sold over the counter and transfer credit risks from 

one party to another. The seller, who is offering credit protection, agrees, in return for a 

periodic fee, to compensate the buyer if a specified credit event, such as default, occurs. 

CDOs are securities backed by a pool of bonds, loans, or other assets. 

9

GAO, Financial Market Regulation: Agencies Engaged in Consolidated Supervision Can 

Strengthen Performance Measurement and Collaboration, GAO-07-154 (Washington, D.C.: 

Mar. 15, 2007). 

10See testimony of Scott M. Polakoff, Acting Director, Office of Thrift Supervision, before 

Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, 

House Committee on Financial Services, March 18, 2009. 

11The primary state insurance regulators include New York, Pennsylvania, and Texas. 

Page 8 GAO-09-975 Troubled Asset Relief Program
 

they have the authority to approve or disapprove certain transactions 

between an insurance company and its parent or its parent’s subsidiaries. 

These agencies also coordinate the monitoring of companies’ insurance 

lines among multiple state insurance regulators. For AIG in particular, 

these regulators have reviewed reports on liquidity, investment income, 

and surrender and renewal statistics; evaluated potential sales of AIG’s 

domestic insurance companies; and investigated allegations of pricing 

disparities. 

In addition, Treasury’s purchase, management, and sale of assets under 

TARP, including those associated with AIG, are subject to oversight by 

SIGTARP. As part of its quarterly reports to Congress, SIGTARP has 

provided information on federal assistance and the restructuring of the 

federal assistance provided to AIG, as well as information on the 

unwinding of AIGFP and the sale of AIG’s assets.12 Recently, we and 

SIGTARP have initiated a coordinated review of the federal governance 

over institutions such as AIG where the government has provided 

extraordinary assistance and has a significant ownership interest. The key 

focus of this review includes the extent of government involvement in 

management of such companies and the extent to which effective risk 

management, internal controls, and monitoring are in place to protect and 

balance the government’s interests in relation to corporate needs. 

Overview of the Federal 

Reserve’s and Treasury’s 

Authorities 

The Federal Reserve and Treasury provided assistance to AIG under the 

following authorities: 

• Section 13(3) of the Federal Reserve Act.13 This provision allows the 

Federal Reserve, in “unusual and exigent circumstances,” to authorize any 

Federal Reserve Bank to extend credit in the form of a discount to 

individuals, partnerships, or corporations when the credit is “indorsed or 

otherwise secured” to the satisfaction of the Federal Reserve Bank, after 

obtaining evidence that the individual, partnership, or corporation is 

unable to secure adequate credit accommodations from other banking 

institutions. The Federal Reserve has used this emergency authority in 

 

12SIGTARP: Office of the Inspector General for the Troubled Asset Relief Program, 

Quarterly Report to Congress, July 21, 2009; SIGTARP: Office of the Inspector General for 

the Troubled Asset Relief Program, Quarterly Report to Congress, April 21, 2009; 

SIGTARP: Office of the Inspector General for the Troubled Asset Relief Program, Initial 

Report to the Congress, February 6, 2009. 

13Section 13(3) of the Federal Reserve Act, as amended, codified at 12 U.S.C. § 343 (2006). 

Page 9 GAO-09-975 Troubled Asset Relief Program
 

support of the government’s efforts to stabilize systemically significant 

financial institutions, including AIG, and this is the same authority used for 

various other Federal Reserve actions in the ongoing financial crisis. 

• Emergency Economic Stabilization Act of 2008.14 The act authorized 

Treasury to establish TARP and to implement the program through a new 

Office of Financial Stability within Treasury. Among other things, the act 

grants Treasury broad, flexible authorities to purchase and insure troubled 

assets from financial institutions. The act defines troubled assets to 

include residential or commercial mortgages and securities based on such 

mortgages. Troubled assets may also include any other financial 

instrument (e.g., equities) that the Secretary of the Treasury, after 

consultation with the Chairman of the Federal Reserve, determines is 

necessary to purchase to promote financial market stability. 

• The American Recovery and Reinvestment Act of 2009 (ARRA).

15

Provisions of this act amend and restate the executive compensation and 

corporate governance provisions of the act. 

The Federal Reserve and Treasury determined through analysis of 

information provided by AIG and insurance regulators, as well as publicly 

available information, that market events in September 2008 could cause 

AIG to fail, which would pose systemic risk to financial markets.16

Consequently, the Federal Reserve and Treasury took steps to ensure that 

AIG obtained sufficient liquidity and could complete an orderly sale of its 

operating assets, continue to meet its obligations, and close its investment 

positions in its securities lending program and AIGFP. The Federal 

Reserve explained that a major concern was public confidence in the 

financial system and the economy. The Federal Reserve and Treasury said 

that financial markets and financial institutions were experiencing 

The Federal Reserve 

and Treasury 

Provided Assistance 

to AIG to Limit 

Systemic Risk to the 

Financial Markets 

 

14Pub. L. No. 110-343, 122 Stat. 3765 (2008). 

15Pub. L. No. 111-5, Div. B, Title VII, 123 Stat. 115, 516 (2009). 

16As we said in our March 2009 testimony on credit default swaps, there is no single 

definition for systemic risk. Traditionally, systemic risk was viewed as the risk that the 

failure of one large institution would cause other institutions to fail. This micro-level 

definition is one way to think about systemic risk. Recent events have illustrated a more 

macro-level definition: the risk that an event could broadly affect the financial system 

rather than just one or a few institutions. See, GAO, Systemic Risk: Regulatory Oversight 

and Recent Initiatives to Address Risk Posed by Credit Default Swaps, GAO-09-397T

(Washington, D.C.: Mar. 5, 2009). 

T

Page 10 GAO-09-975 Troubled Asset Relief Program
 

unprecedented strains resulting from the placing of Fannie Mae and 

Freddie Mac under conservatorship; the failure of financial institutions, 

including Lehman Brothers Holdings, Inc. (Lehman Brothers); and the 

collapse of the housing markets. The Federal Reserve said that in light of 

these events, a disorderly failure of AIG could have contributed to higher 

borrowing costs, diminished availability of credit, and additional failures. 

They concluded that a collapse of AIG would have been much more severe 

than that of Lehman Brothers because of its global operations, large and 

varied retail and institutional customer base, and different types of 

financial service offerings. The Federal Reserve and Treasury said that a 

default by AIG would have placed considerable pressure on numerous 

counterparties and triggered serious disruptions in the commercial paper 

market. Moreover, counterparties of AIGFP would no longer have 

protection or insurance against losses if AIGFP, a major seller of CDS 

contracts, defaulted on its obligations and CDO tranche values continued 

to decline. The Federal Reserve intended the initial September 2008 

assistance to enable AIG to meet these obligations to its counterparties 

and begin the process of selling noncore business units in order to raise 

cash to repay the credit facility and other liabilities.17 However, AIG’s 

continuing financial deterioration and instability in the financial markets 

resulted in subsequent assistance by the Federal Reserve and Treasury in 

November 2008 and March 2009 to support AIG’s liquidity and to avoid a 

disorderly failure and facilitate an orderly sale of assets and maximum 

repayment of federal financial assistance while mitigating disruptions in 

the broader financial markets. 

AIG’s Financial Problems 

Mounted Rapidly in 2008 

From July 2008 through early September 2008, AIG faced increasing 

pressure on its liquidity following a downgrade in its credit ratings in May 

2008 due in part to losses from its securities lending program (see fig. 2). 

This deterioration followed liquidity strains earlier in the year, although 

AIG was able to raise capital in May 2008 to address its needs. Specifically, 

the declines in its securities lending reinvestment portfolio of RMBS assets 

and declining values of CDOs against which AIGFP had written CDS 

protection forced AIG to use an estimated $9.3 billion of its cash reserves 

in July and August 2008 to repay securities lending counterparties that 

terminated existing agreements and to post additional collateral required 

 

17The credit facility is a revolving loan created by FRBNY for the general corporate 

purposes of AIG and its subsidiaries, including functioning as a source of liquidity to pay 

obligations as they come due. 

Page 11 GAO-09-975 Troubled Asset Relief Program
 

by the trading counterparties of AIGFP. AIG attempted to raise additional 

capital in the private market in September 2008, but was unsuccessful. On 

September 15, 2008, the rating agencies downgraded AIG’s debt rating, 

which resulted in the need for an additional $20 billion to fund its added 

collateral demands and transaction termination payments.18 In addition, 

AIG’s share price fell from $22.76 on September 8 to $4.76 per share on 

September 15.19 Following the credit rating downgrade, an increasing 

number of counterparties refused to transact with AIG for fear that it 

would fail. Also around this time, the insurance regulators decided they 

would no longer allow AIG’s insurance subsidiaries to lend funds to the 

parent company under a revolving credit facility that AIG maintained. 

Furthermore, the insurance regulators demanded that any outstanding 

loans be repaid and that the facility be terminated. 

 

18Moody’s Investors Service lowered AIG’s rating to A2 from Aa3, or by 2 notches. Standard 

& Poor’s Ratings Services lowered its rating of AIG to A- from AA-, or by 3 notches. Fitch 

Ratings reduced its rating of AIG to A from AA-, or 2 notches (see app. IV for ratings 

definition). 

19AIG’s share price was quoted at $26.73 per share on the New York Stock Exchange on 

July 1, 2008. The shares closed at $3.33 per share on September 30, 2008. 

Page 12 GAO-09-975 Troubled Asset Relief Program
 

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Page 13 GAO-09-975 Troubled Asset Relief Program
 

Figure 2: Timeline of AIG’s Financial Difficulties and Government Actions in Response to Market Turmoil, Fall 2007 to 

September 30, 2008 

Fall 2007: As conditions in the U.S. 

housing market deteriorate, American 

International Group Financial Products

Corporation (AIGFP) begins to lose 

massive amounts of money on credit 

default swaps (CDS) issued on 

collaterized debt obligations (CDO). 

Feb. 2008: 

AIGFP 

co-founder and 

President 

resigns after 

the division 

writes off $11.1 

billion on CDS. 

Mar. 2008: AIG 

forms a compensation committee to 

discuss AIGFP and 

decides to offer 

retention bonuses to 

prevent defections

of key employees. 

May 20: 

AIG raises $20 

billion in private 

capital.

May 12: 

Credit ratings

agencies

Standard & 

Poor’s (S&P) 

and Fitch 

Ratings

(Fitch) each 

downgrade 

their ratings

on AIG. 

May 23: 

Credit ratings agency 

Moody’s Investor 

Service (Moody’s) 

downgrades its

ratings on AIG. 

Jan. - June 20: AIG experiences significant losses, primarily attributable to AIGFP and decreasing values in its

securities, particularly in its securities lending portfolio, leading AIG’s need for large amounts of cash collateral. AIG 

recognizes $8.9 billion in impairment charges in the first 6 months of the year, primarily related to residential 

mortgage-backed securities (RMBS) and structured securities.

July - Aug 31: The super senior CDO 

securities protected by AIGFP’s super senior 

CDS portfolio continue to decline and ratings

of CDO securities are downgraded, resulting 

in AIGFP posting an additional $5.9 billion of 

collateral. AIG does a strategic review of its

businesses and reviewing measures to 

address the liquidity concerns in its securities

lending portfolio and address the ongoing 

collateral calls on AIGFP’s super senior 

multi-sector CDS portfolio, which as of July 

31, 2008, totals $16.1 billion.

Mar. 7: 

Securities

and 

Exchange 

Commission 

proposes a

ban on naked 

short selling.

May 2: 

Federal Reserve’s

Schedule 2 Term 

Securities Lending 

Facility-eligible collateral 

expands to include 

AAA-rated asset-backed 

securities (ABS).

Jan. 5 30 25201510 Feb. 5 30 25201510 Mar. 5 3 25201510 0 Apr. 5 3 25201510 0 May 5 3 25201510 0 June 5 3 25201510 0 July 5 30 25201510 Aug. 5 3 25201510 0

AIG-related actions

Other market events

Page 14 GAO-09-975 Troubled Asset Relief Program
 

Sources: AIG, Federal Reserve, FRBNY, and Treasury.

Sept. 7: Fannie 

Mae and Freddie 

Mac are placed 

in federal 

conservatorship.

Early Sept.: Securities lending requirements and demands to return cash collateral to borrowers to address securities lending activities and continued declining values of 

super senior CDO protected by CDS place increasing stress on the AIG parent company’s liquidity.

Sept. 8-12: AIG’s common stock price decline from $22.76 to $12.14. AIG reported that as of July 31, 2008, S&P’s, Moody’s, and Fitch’s had placed its senior long-term 

debt on negative outlook.

Sept. 11 or 12: AIG approaches FRBNY with two concerns (1) AIG had lent out investment-grade securities for cash collateral, which was invested in illiquid mortgagebacked securities. Consequently, AIG would not be able to liquidate its assets to meet the demands of its counterparties. Since AIG is not regulated by the Federal 

Reserve, the agency is not aware of the company’s financial problems. (2) Because AIG is facing a downgrade in its credit rating the next week, it needs immediate 

liquidity help. 

Sept. 12: S&P places AIG on CreditWatch with negative implications and notes that upon completion of its review, the agency could affirm the AIG parent company’s

current rating of AA- or lower the rating by one to three notches. AIG’s subsidiaries, International Lease Finance Corporation (ILFC) and American General Finance, Inc. 

(AGF), are unable to replace all of their maturing commercial paper with new issuances of commercial paper. As a result, AIG advances loans to these subsidiaries to 

meet their commercial paper obligations.

Sept. 13-14: AIG accelerates the process of attempting to raise additional capital and discusses capital injections and other liquidity measures with potential investors. 

AIG also meets with Blackstone Advisory Services LP to discuss possible options. The Federal Reserve examines AIG to determine if it is systemically important. This is

the same weekend that Lehman Brothers goes into bankruptcy.

Sept. 15: AIG is again unable to access the commercial paper market for its primary commercial paper programs, AIG Funding, ILFC, and AGF. AIG advances loans to 

ILFC and AGF to meet their funding obligations. AIG meets with representatives of Goldman, Sachs & Co., J.P. Morgan, and FRBNY to discuss the creation of a $75 

billion secured lending facility. S&P, Moody’s, and Fitch downgrade AIG’s long-term debt rating. As a result, AIGFP has to post additional collateral. AIGFP estimates it 

needs more than $20 billion to fund additional collateral demands and transaction termination payments in a short period of time. AIG’s common stock price falls to $4.76 

per share.

Sept. 16: AIG’s plans for the secured lending facility fail. To provide liquidity, both ILFC and AGF draw down on their existing revolving credit facilities, resulting in 

borrowings of approximately $6.5 billion and $4.6 billion, respectively. AIG is notified by its insurance regulators that it will no longer be permitted to borrow funds from its

insurance company subsidiaries under a revolving credit facility that AIG maintained with certain of its insurance subsidiaries acting as lenders. Subsequently, the 

insurance regulators require AIG to repay any outstanding loans under that facility and to terminate it. Determining that AIG has no viable private-sector solution to its

liquidity problems, the Federal Reserve extends the facility to AIG to prevent systemic failure. AIG’s Board of Directors approves borrowing from FRBNY based on a term 

sheet that sets forth the terms of the secured credit agreement and related equity participation. 

Sept. 22: The intercompany facility is terminated effective September 22, 2008. AIG enters into a Credit Agreement in the form of a 2-year secured loan with the Federal Reserve. 

Sept. 14: Ten banks create $70 

billion liquidity fund. Eligible 

collateral for the Federal Reserve’s

Term Securities Lending Facility 

(TSLF) and Primary Dealer Credit 

Facility (PDCF) broadened.

Sept. 15: Lehman files for bankruptcy. 

Bank of America purchases Merrill Lynch. 

Sept. 16: Reserve Management 

Corporation’s money market fund “breaks

the buck”–net asset value drops below $1.

Sept. 19: Treasury 

establishes a money 

market fund guarantee 

program for up to $50 

billion. Federal Reserve 

establishes the 

Asset-Backed 

Commercial Paper 

Money Market Fund 

Facility. SEC bans

shortselling on 799 

financial stocks.

Sept. 21: Goldman Sachs and Morgan Stanley are approved as bank holding companies by Federal Reserve, pending statutory antitrust waiting period. To provide 

increased liquidity support to these firms as they transition to managing their funding within a bank holding company structure, the Federal Reserve authorizes FRBNY to 

extend credit to the U.S. broker-dealer subsidiaries of Goldman Sachs and Morgan Stanley against all types of collateral that may be pledged at the Federal Reserve's

primary credit facility for depository institutions or at the existing PDCF; the Federal Reserve also makes these collateral arrangements available to the broker-dealer 

subsidiary of Merrill Lynch. Federal Reserve also authorizes FRBNY to extend credit to the London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley, 

and Merrill Lynch against collateral that would be eligible to be pledged at the PDCF.

Sept. 22: Based on consultation with the Department of Justice regarding the applications of 

Goldman Sachs and Morgan Stanley to become 

bank holding companies, the Federal Reserve 

announces on Monday that the transactions may be 

consummated immediately without the application of 

the 5-day antitrust waiting period.

Sept. 25:

Washington 

Mutual 

closed by 

OTS.

Sept. 26: The swap lines

for the European Central 

Bank and the Swiss

National Bank are 

increased.

Sept. 5 10 15 20 25 30

Page 15 GAO-09-975 Troubled Asset Relief Program
 

AIG Contacted FRBNY as 

Its Liquidity Level 

Deteriorated, but Options 

for Government Assistance 

Were Limited 

Given the liquidity constraints and its inability to raise new funds, AIG 

contacted FRBNY on September 12, 2008, to seek assistance, fearing that 

low cash reserves could soon cause its failure. Federal Reserve and 

FRBNY officials with whom we spoke said that while FRBNY was the 

initial point of contact for AIG, Treasury officials and New York state 

insurance regulators were included in subsequent discussions about forms 

of assistance. Treasury officials—who were already in New York to 

deliberate on an appropriate policy response to the distress of Lehman 

Brothers—attended meetings at AIG with FRBNY officials during the week 

prior to the final decision to provide assistance. FRBNY and Treasury 

officials were joined by the New York state insurance regulators in 

discussions during the following weekend. Given the short time frame, 

Federal Reserve officials added that OTS, the consolidated regulator of 

AIG, was not consulted about the condition of AIG. FRBNY officials said 

that prior to these discussions, they had no nonpublic information on AIG 

operations because they did not supervise the company. FRBNY officials 

added that state insurance regulators provided information on the 

condition of AIG’s insurance subsidiaries, including the potential impact of 

RMBS portfolio losses on the subsidiaries’ capital base. In addition, during 

these meetings, AIG provided the Federal Reserve, FRBNY, and Treasury 

with financial and operational data, including updates on liquidity and 

counterparty information, to assist them with assessing AIG’s financial 

condition. Following these meetings, FRBNY and Federal Reserve officials 

presented their assessment of the situation to the Board of Governors of 

the Federal Reserve System, which authorized FRBNY to provide liquidity 

in the form of a Revolving Credit Facility to AIG on September 16. We 

discuss the basis for and the form of this assistance later in this report. 

Federal Reserve officials told us that the potential failure of AIG was 

different from two other prominent failures in 2008—Bear Stearns and 

Lehman Brothers. A bankruptcy of Bear Stearns was averted through a 

sale process, and Lehman Brothers’ principal U.S. broker-dealer subsidiary 

was largely resolved through a sale process overseen by the bankruptcy 

court. Federal Reserve officials were skeptical that a sale process could be 

successfully completed for AIG, which was larger than Bear Stearns and 

Lehman Brothers. The Federal Reserve added that it also had more limited 

options in providing assistance to Lehman Brothers. The officials stated 

that Section 13(3) of the Federal Reserve Act requires that emergency 

loans extended by Federal Reserve Banks be adequately secured, and 

Lehman Brothers’ assets available as collateral fell short of the amount 

needed to secure a Federal Reserve loan of sufficient size to avert failure. 

Page 16 GAO-09-975 Troubled Asset Relief Program
 

As the Federal Reserve, in consultation with Treasury, attempted to 

address the systemic risk that AIG’s default could have posed, it noted that 

it faced regulatory and legal constraints. While the Federal Deposit 

Insurance Corporation (FDIC) has the authority to unwind banks, the 

Federal Reserve and Treasury noted that regulatory bodies involved with 

AIG did not have an effective mechanism for unwinding such a large 

nonbank financial institution in an orderly manner.20 AIG’s business units 

reported to hundreds of regulators, none of which maintained the 

authority to unwind AIG’s various businesses. At the same time, AIG 

maintained financial relationships with a large number of banks, insurance 

companies, and other market participants across the globe, creating the 

possibility for system-wide disruption in the event of the failure of AIG. 

According to Federal Reserve officials, this lack of a centralized and 

orderly resolution mechanism presented the Federal Reserve and Treasury 

with few alternatives in September 2008. Federal Reserve officials told us 

that the only other viable outcome besides the assistance package would 

have been bankruptcy. Without additional liquidity, AIG likely would have 

been forced to declare bankruptcy following any default on its contracts 

with counterparties. AIG’s negotiations with counterparties and creditors 

to reduce the outstanding obligations through contract renegotiation had 

proven unsuccessful. Providing new liquidity to AIG and its affiliates 

would allow the company to satisfy its obligations. Thus, time was 

increasingly limited and the amount of assistance required continued to 

grow following the credit downgrade and the Lehman Brothers failure on 

September 15, 2008, as many AIG contracts required increased collateral 

and as market prices decreased. 

The Federal Reserve described its actions in mid-September 2008 as an 

effort to avoid the effects that AIG’s disorderly failure could have had on 

financial markets and the broader economy and allow AIG to conduct an 

orderly restructuring of its operations. As the Chairman of the Federal 

 

20On March 25, 2009, Treasury announced a legislative proposal under which, after a 

systemic risk determination by the Secretary of the Treasury (in consultation with the 

President), FDIC would have the authority to provide financial assistance to and to put into 

receivership or conservatorship “systemically significant financial companies” that are not 

subject to FDIC’s existing resolution authority. FDIC, with Treasury’s approval, would be 

authorized to provide financial assistance through loans or equity investments, or by 

purchasing or guaranteeing assets. As a conservator or receiver, FDIC would have 

additional powers to sell or transfer assets or liabilities of the company, renegotiate or 

repudiate the company’s contracts, and replace the board of directors and senior officers 

of the company. 

Page 17 GAO-09-975 Troubled Asset Relief Program
 

Reserve Board stated, “[a]t best the consequences of AIG’s failure would 

have been a significant intensification of an already severe financial crisis 

and worsening of global economic conditions. Conceivably, its failure 

could have resulted in a 1930s-style global financial and economic 

meltdown, with catastrophic implications for production, income, and 

jobs.”21 Avoiding the immediate threat of bankruptcy was the short-term 

goal of the federal agencies and state regulators who met to discuss the 

company’s situation prior to the establishment of the first form of 

assistance. The Federal Reserve and Treasury determined that AIG would 

be able to put up cash collateral and avoid imminent failure by receiving 

sufficient liquidity support. Counterparties would also avoid the possibility 

of holding defaulted contracts and needing to raise additional capital in 

adverse market conditions. In addition, Treasury noted in public 

documents the need to slow the spread of financial crisis and to allow for 

AIG to regroup and satisfy its obligations. 

Critics of the government’s assistance have noted that by providing 

assistance to AIG for the purpose of providing or returning cash collateral 

to counterparties, the government was indirectly assisting the 

counterparties, and they questioned the efficiency of this approach. Some 

noted that banks that had bought CDS contracts from other failed insurers 

were paid 13 cents on the dollar in deals mediated by New York’s 

insurance regulator, whereas AIG’s counterparties were paid market value. 

They said that new capital to AIG in effect served as direct infusions to the 

counterparties, including foreign financial institutions. Conversely, 

Federal Reserve officials believed that if AIG had failed to pay the 

collateral amounts due, it would have been in default of its agreements, 

which could have resulted in AIG’s counterparties forcing it into 

bankruptcy. Moreover, they believed that the unfolding crisis warranted 

swift action to prevent a total collapse of the financial system given its 

fragile state at that time. 

 

21See testimony of Ben S. Bernanke, Chairman of the Board of Governors of the Federal 

Reserve System, before the House Financial Services Committee, March 24, 2009. 

Page 18 GAO-09-975 Troubled Asset Relief Program
 

The Federal Reserve concluded through internal discussions and dialogue 

with AIG’s state insurance regulators that the failure of AIG would pose 

systemic risk for four primary reasons: (1) failure could have undermined 

already fragile business and investor confidence; (2) counterparty risk, 

through defaults and collateral requirements, could have negatively 

affected numerous financial institutions and the financial system; (3) 

default by AIG on its commercial paper could have negatively affected the 

money markets; and (4) failure could have disrupted the derivatives 

markets and caused liquidity problems for holders of AIG products. 

First, given the nature of the ongoing crisis, the Federal Reserve was 

concerned that the disorderly failure of AIG would have undermined 

already fragile business and investor confidence that had been shaken by 

numerous events since the onset of the financial crisis in 2007, including 

the decision 2 weeks earlier to place Fannie Mae and Freddie Mac in 

conservatorship and the bankruptcy of Lehman Brothers on September 15, 

2008. The Federal Reserve believed that the failure of AIG under the 

conditions then prevailing would have increased investor risk aversion and 

consequently contributed to higher borrowing costs and materially weaker 

economic performance. Additionally, the Chairman of the Federal Reserve 

noted that market confidence would have been hurt in other areas that 

would have been affected by AIG’s failure, including the insurance 

industry, state and local governments that invested with AIG, 401(k) plans 

that purchased insurance with AIG, and banks that extended loans and 

credit lines to the company. He further stated that focusing on direct 

effects of a default on AIG’s counterparties understates the risks to the 

financial system as a whole.22

The Federal Reserve 

Determined That AIG and 

Its Insurance Subsidiaries 

Posed a Systemic Risk to 

the Financial System Amid 

Market Turmoil in 

September 2008 

Failure Would Have 

Undermined Business and 

Investor Confidence 

The initial market stress that surrounded AIG’s troubles can be traced to 

the tension in the broad-based decline in home prices and the cascading 

effect on mortgage-backed securities that began in 2007. The decline in 

home prices was a factor in the significant increase in delinquencies in the 

mortgage market. This was especially felt in the subprime markets.23

Furthermore, these defaults and declines in underlying mortgages 

decreased the value of mortgage-backed securities and securitizations in 

 

22See testimony of Ben S. Bernanke, Chairman of the Board of Governors of the Federal 

Reserve System, before the House Financial Services Committee, March 24, 2009. 

23Subprime mortgages are loans that are traditionally riskier and extended to borrowers 

with lower credit standing, higher ratio of borrower debt to income, or higher ratio of the 

value of the loan to the collateral. 

Page 19 GAO-09-975 Troubled Asset Relief Program
 

general. These other securitized products declined subsequent to the 

decrease in mortgage-backed security valuations and included other assetbacked securities and CDOs. Essentially, with the collapse of underlying 

loans, the values of these instruments also suffered. The decline in value of 

these instruments and the collapse of Bear Stearns and Lehman Brothers 

led financial market participants to question about whether they would be 

able to collect on outstanding obligations.24 Therefore, market confidence 

was further eroded in an environment already facing tightening of credit 

and interbank lending activities. 

As another reason for systemic risk concern, the Federal Reserve stated 

that counterparty risk would have negatively affected the financial system 

because AIG’s default on its obligations to trading counterparties could 

have seriously disrupted the ability of the financial system to operate 

effectively through its counterparty relationships with important market 

participants. The fluid operation of the payments and settlements system 

is critical to the U.S. financial markets, as market participants depend on 

this system to move funds between counterparties and to close 

transactions. Through the securities lending program and its AIGFP 

subsidiary, AIG maintained counterparty relationships that could have 

been negatively affected by the inability of AIG to fulfill terms under 

outstanding contracts. For example, there would have been harmful 

consequences to AIG’s counterparties—including large banks such as 

Société Générale, Deutsche Bank, Goldman Sachs, and Merrill Lynch—and 

defaults directly related to AIG would then have rippled through the 

system and affected transactions between other counterparties.25 This 

contagion would have been difficult to manage, as investor confidence 

would have plummeted with each market participant failure. The Federal 

Reserve Chairman stated in his March 2009 testimony that it would have 

been difficult to prevent additional failures in the wake of AIG’s failure.26

Counterparty Risk Would Have 

Negatively Affected Numerous 

Financial Institutions and the 

Financial System 

 

24Counterparties reportedly were unwilling to do business with AIG because they did not 

want their assets tied up in bankruptcy, which could have taken years to resolve. 

25The large banks were identified as counterparties in AIG’s CDS contracts in the testimony 

of Edward M. Liddy, Chairman and Chief Executive Officer, American International Group, 

Inc. before the House Financial Services Committee, March 18, 2009. 

26See testimony of Ben S. Bernanke, Chairman of the Board of Governors of the Federal 

Reserve System, before the House Financial Services Committee, March 24, 2009. 

Page 20 GAO-09-975 Troubled Asset Relief Program
 

The Federal Reserve also noted that a default by AIG on its commercial 

paper would have negatively affected money market participants, led to 

higher lending rates, and reduced credit availability for borrowers as other 

commercial paper lenders and money market funds viewed the markets as 

riskier. The Federal Reserve anticipated that a default by AIG on its 

commercial paper could have triggered runs on money market mutual 

funds holding defaulted AIG commercial paper of an estimated $20 billion. 

This run could have led to spreading pessimistic views of the money 

market as a whole and runs on related money market funds with no 

exposure to AIG as investors fled what had been considered a highly safe 

class of assets. Furthermore, these money funds’ inability to invest and 

investor fears could have disrupted the commercial paper market, limiting 

the ability of financial and nonfinancial firms to access the short-term 

funding market to meet obligations. Federal Reserve officials with whom 

we spoke stated that this concern became increasingly important 

following disruptions in the money market in the wake of Lehman 

Brothers’ failure. The Federal Reserve and other government agencies 

anticipated funding issues for many firms in the United States. These 

concerns ultimately contributed to the development of a number of other 

programs around this time to stem the crisis in the credit markets, such as 

the FDIC’s Temporary Liquidity Guarantee Program and the Federal 

Reserve’s own Commercial Paper Funding Facility; the latter program 

being one in which at least four AIG affiliates have participated.27

Default on Commercial Paper 

Would Have Negatively 

Affected Money Markets 

AIG had encountered such funding problems when it was unable to access 

the short-term funding market to obtain liquidity needed to meet its 

obligations. The collapse of large financial institutions and falling investor 

confidence had affected lending and trading conditions in the credit 

markets. In particular, short-term funding rates increased in response to 

perceived higher risk as the mortgage markets and related derivative 

markets effectively ceased to operate in the fall of 2008. This led to high 

spreads between lending rates and the target federal funds rate and illiquid 

trading conditions in the short-term money markets. As a result of these 

 

27The Temporary Liquidity Guarantee Program was created in November 2008 by FDIC to 

encourage liquidity in the banking system by guaranteeing newly issued senior unsecured 

debt of banks, thrifts, and certain holding companies, and by providing full coverage of 

non-interest-bearing deposit transaction accounts. The Commercial Paper Funding Facility 

was created in October 2008 under Section 13(3) of the Federal Reserve Act by the Federal 

Reserve to help provide liquidity to term funding markets. The Commercial Paper Funding 

Facility involves the purchase, through a special purpose vehicle with financing from the 

Federal Reserve, of 3-month unsecured and asset-backed commercial paper directly from 

eligible issuers. 

Page 21 GAO-09-975 Troubled Asset Relief Program
 

conditions, AIG was unable to raise additional liquidity. This inability 

became the greatest obstacle to AIG stabilizing its financial condition in 

mid-September, as it became evident that falling prices and the risk of 

counterparty failure would not be temporary. AIG publicly disclosed in its 

financial reports that declining asset prices had forced the posting of 

additional collateral in connection with its derivative positions.28 A further 

downgrade in AIG’s credit rating could have triggered a default because 

the downgrade would have resulted in AIG having to post additional 

collateral with counterparties. 

Finally, the Federal Reserve and Treasury stated in separate reports and 

testimonies in the fall of 2008 and early 2009 that the failure of AIGFP 

could have led to billions of dollars of losses at bank counterparties that 

bought CDS contracts from AIG.29 Because many banks used these 

contracts as credit protection, following losses to CDS contract holders, if 

any, AIG’s failure could have led to mounting losses through sudden, 

unhedged, uncollateralized exposure as market conditions worsened and 

underlying assets continued to decline in value. Banks and other 

counterparties could have faced declining capital bases because of these 

unrealized losses. Moreover, counterparties with unfulfilled derivative 

contracts could have faced difficulties in offsetting balance sheet 

exposures through replacement derivatives, and they would have had to 

confront the possibility of entering into new contracts at a time when 

market participants had become increasingly risk averse and unwilling to 

execute new transactions. 

Failure Would Have Disrupted 

the Derivatives Markets and 

Caused Liquidity Issues for 

Holders of AIG Products 

After September 2008, 

Treasury and the Federal 

Reserve Determined That 

AIG Needed Further 

Assistance as Market 

Conditions Continued to 

Deteriorate 

In the period following FRBNY’s establishment of the Revolving Credit 

Facility for AIG in September 2008, market confidence continued to fall 

and lending rates continued to rise as financial institutions became 

increasingly reluctant to lend. Federal Reserve officials noted that the 

financial markets also experienced increased illiquidity in many asset 

classes where market participants were forced to trade assets at declining 

values. An effect of market illiquidity and borrowers’ inability to access 

lending markets was a halt to the secondary market for asset sales. 

 

28Disclosed in Third Quarter 2008 financial reports issued by AIG and restated in 

Addendum to Testimony by Mr. Edward M. Liddy on March 18, 2009, before the House 

Financial Services Committee. 

29See testimony of Ben S. Bernanke, Chairman of the Board of Governors of the Federal 

Reserve System, before the House Financial Services Committee, March 24, 2009. 

Page 22 GAO-09-975 Troubled Asset Relief Program
 

Treasury officials noted that ensuring financial stability was the most 

important goal, including the restoration of consumers’ and businesses’ 

access to funding and credit, and they viewed the troubles in the credit 

market as an inhibitor to success. Treasury and the Federal Reserve were 

also concerned that these troubles would hamper AIG’s ability to dispose 

of operating assets to stabilize the business and repay outstanding debt to 

FRBNY according to the plan in place at the time AIG and FRBNY entered 

in the agreement establishing the Revolving Credit Facility. 

To facilitate AIG’s efforts to restructure and prevent further degradation to 

AIG’s balance sheet and further credit downgrades, in November 2008 

Treasury joined the Federal Reserve in the efforts to assist AIG (see fig. 3). 

Treasury’s assistance was organized as a preferred equity investment 

under the SSFI program of TARP rather than as debt. Treasury formed its 

investment in this manner in consideration of the effect of the Revolving 

Credit Facility on AIG’s balance sheet, which had increased the company’s 

debt levels, or leverage, and lowered the company’s interest coverage 

ratio.30 These are two of the metrics used by credit rating agencies in 

assessing the financial strength of an issuer. Maintaining AIG’s credit 

rating continued to be an important goal of Treasury and FRBNY. 

Treasury’s use of an equity infusion, a tool unavailable to it until the 

Emergency Economic Stabilization Act of 2008 became law, allowed AIG 

to obtain new capital without putting further strain on its financial 

position through additional leverage. According to Treasury’s press 

release, improving AIG’s ability to dispose of its assets in an orderly 

manner was a primary goal of the restructuring and of the additional 

capital provided to the company.31

 

30Interest coverage ratio is a ratio used to determine how a company can pay interest on 

outstanding debt and is calculated by dividing a company’s operating income by the 

company’s interest expenses over a period. The higher the ratio, the better positioned the 

company is to service its debt expense. A ratio below 1 indicates the company is not 

generating sufficient operating income to pay its interest. 

31See March 2, 2009 Treasury press release at http://www.treas.gov/press/releases/tg44.htm. 

Page 23 GAO-09-975 Troubled Asset Relief Program
 

Figure 3: Timeline of the Restructuring of AIG’s Assistance, Market Events, and Related Government Actions, October 1, 

2008, to April 30, 2009 

Sources: AIG, Federal Reserve, FRBNY, and Treasury.

Oct. 7:

Federal 

Reserve 

establishes

the 

Commercial 

Paper 

Funding 

Facility.

Oct. 21:

Money 

Market 

Investor 

Funding 

Facility is

established.

Oct. 28:

Consumer 

confidence 

hits lowest 

point on 

record.

Oct. 7: American 

International Group 

Inc. (AIG) makes

$18.7 billion in 

payments tied to 

credit default swaps

to counterparties that 

include Goldman 

Sachs and Société 

Générale SA. 

Nov. 10: The Department of the Treasury 

(Treasury) announces plans to use its

Systemically Significant Failing Institutions

program, under TARP, to purchase $40 

billion in AIG preferred shares.

Nov. 25: AIG enters into an agreement 

with Treasury, whereby Treasury agrees

to purchase $40 billion of fixed-rate 

cumulative preferred stock of AIG 

(Series D) and a warrant to purchase 

approximately 2 percent of the shares

of AIG’s common stock to Treasury.

March 2: The March restructuring includes AIG, FRBNY, and 

Treasury announcing agreements in principle to modify the 

terms of the credit agreement and the Series D Preferred 

Stock and to provide a $30 billion equity capital commitment 

facility; FRBNY announcing their intent to enter into the 

American International Assurance Company, Ltd. and 

American Life Insurance Company special purpose vehicle 

(SPV) transactions; and AIG and FRBNY announcing their 

intent to enter into a transaction for SPVs backed by in-force 

blocks of life insurance policies and their agreement in 

principle to amend the Federal Reserve Credit Agreement to 

remove the interest rate floor. AIG announces $61.7 billion 

fourth-quarter loss, the largest in U.S. corporate history.

March 1: 

AIG enters into the Series

C Preferred Stock 

Purchase Agreement.

Nov.: As part of the November restructuring, Federal Reserve Bank of New York (FRBNY) 

announces plans to extend credit to Maiden Lane II to purchase residential mortgage-backed 

securities from the U.S. securities lending portfolio of AIG subsidiaries, and FRBNY extends credit 

to Maiden Lane III to purchase multi-sector collateralized debt obligations on which AIGFP has

written credit default swaps. FRBNY terminates the $37.8 billion securities program.

April 17: 

AIG and the Office of 

Financial Stability (OFS) enter 

into an agreement in which 

OFS agrees to exchange the 

$40 billion of Series D 

cumulative preferred shares

for $41.6 billion of Series E 

noncumulative preferred 

shares. AIG and Treasury 

enter into an agreement under 

which AIG agrees to issue 

3,000 shares of noncumulative 

preferred stock (Series F) and 

a warrant to purchase up to 

3,000 shares of AIG common 

stock. In return, Treasury 

agrees to create an equity 

capital facility to provide 

immediately available funds to 

AIG up to about $29.8 billion.

Oct. 8: The Fed 

pledges to AIG 

for the $37.8 

billion securities

lending program.

AIG-related actions

Other market events

Oct. 5 30 25201510 Nov. 5 30 25201510 Dec. 5 30 25201510 Jan. 5 30 25201510 Feb. 5 30 25201510 Mar. 5 30 25201510 April 5 30 25201510

2008 2009

Page 24 GAO-09-975 Troubled Asset Relief Program
 

By November 2008, it was evident that the Revolving Credit Facility had 

not sufficiently halted the withdrawal of counterparties from transactions 

with AIGFP or claims for additional collateral in connection with AIG’s 

securities lending business. As counterparty withdrawals and claims for 

collateral continued, AIG faced additional liquidity shortfalls in an effort to 

meet its obligations. AIG estimates that between September 16, 2008, and 

December 31, 2008, $22.4 billion in cash was paid directly by AIG to AIGFP 

counterparties as collateral, while FRBNY provided another $46.6 billion 

in assistance for this purpose. The restructuring and other assistance the 

Federal Reserve and Treasury announced in November 2008 were 

intended to allow AIG to concentrate on using remaining liquidity 

available from the Revolving Credit Facility for purposes other than 

posting collateral for outstanding transactions contracted prior to the 

establishment of the Revolving Credit Facility. As discussed more fully 

later in this report, to address this situation, the Federal Reserve 

committed in November to provide additional assistance to AIG through 

the establishment of special purpose vehicles that would allow AIG to 

close out most of AIGFP’s super senior CDS portfolio as well as to 

liquidate the portfolio of RMBS assets that was purchased through the 

securities lending reinvestment program of its insurance subsidiaries.32

The Federal Reserve noted that this RMBS portfolio and the CDS 

protection underwritten by AIGFP accounted for the majority of the 

liquidity shortfall and $19 billion of the $24.5 billion in losses reported by 

AIG for the third quarter of 2008.33

In Early 2009 the Federal 

Reserve and Treasury 

Determined That 

Assistance Needed to Be 

Restructured to Allow 

Time for AIG to Dispose of 

Its Assets 

In March 2009, continuing market stress and the difficult business 

conditions affecting AIG and would-be buyers of AIG’s business units 

forced the Federal Reserve and Treasury to again restructure the various 

forms of assistance provided to AIG. AIG continued to work on the 

divestiture and repayment plan created with the establishment of the 

Revolving Credit Facility in September 2008. Nevertheless, the continuing 

difficult market conditions compelled AIG to restructure existing forms of 

assistance with FRBNY and Treasury in order to decrease leverage and 

create additional time and flexibility to dispose of key business assets. 

 

32Special purpose vehicles are legal entities, such as limited liability companies, created to 

carry out some specific financial purpose or activity. 

33See Federal Reserve, Report Pursuant to Section 129 of the Emergency Economic 

Stabilization Act of 2008: Restructuring of the Government’s Financial Support to the 

American International Group, Inc. (Washington, D.C., Nov. 10, 2008). 

Page 25 GAO-09-975 Troubled Asset Relief Program
 

According to AIG’s financial reports and testimony by the AIG Chairman, 

the company faced persistent difficult market conditions as it entered 

2009.34 In particular, the deteriorating state of the financial markets 

created large losses for AIG in the fourth quarter of 2008. Furthermore, 

AIG had difficulties finding buyers for operating businesses that it had pu

up for sale in the last half of 2008 because many potential buyers were 

facing financial challenges of their own. However, ongoing federal 

assistance prevented further downgrades in AIG’s credit rating through the 

first half of 2009. This allowed AIG to conserve critical cash in its drive to 

maintain sufficient liquidity and unwind its AIGFP portfolio. The AIGFP 

officials with whom we spoke said that a downgrade of the parent 

company’s credit rating and staff retention remained the most pressing 

issues, rather than portfolio volatility. In March 2009, the President of 

FRBNY continued to believe that derivative positions of substantial 

magnitude still remained in force at AIGFP that could lead to billions o

dollars of losses and a corresponding loss of taxpayer dollars invested 

the company in the form of equity and debt. Subsequently, AIGFP officials

stated that AIGFP had succeeded in exiting many of its riskiest positions, 

including many of the CDS positions related to corporate CDOs, foreign 

exchange positions, commodities positions, and private equity-related 

busine

t 

f 

in 

sses as of June 2009. 

 

In March 2009, the Federal Reserve and Treasury approved several 

changes to their existing debt and equity relationships with AIG to lower 

leverage and create additional time and flexibility for AIG to divest 

businesses and repay federal assistance. For example, the Federal Reserve 

authorized FRBNY to extend credit to securitize life insurance policies 

underwritten by certain AIG life insurance subsidiaries and, in addition, to 

receive a nonvoting, preferred equity stake in AIG subsidiaries American 

International Assurance Company, Ltd. (AIA) and American Life Insurance 

Company (ALICO) in exchange for a reduction in the outstanding balance 

under the Revolving Credit Facility, with a corresponding reduction in 

FRBNY’s commitment to lend under the facility. FRBNY believed that, 

considering the market difficulties, the exchange offer would help to 

protect the government’s investment in AIG by not forcing the company to 

make decisions that would harm its ability to repay its obligations to 

FRBNY. In another example, Treasury exchanged its equity interest 

purchased through the SSFI. These, and other actions, are discussed in 

34See Testimony of Edward M. Liddy, Chairman and Chief Executive Officer, American 

International Group, Inc. before the House Financial Services Committee, March 18, 2009. 

Page 26 GAO-09-975 Troubled Asset Relief Program
 

detail in the next section of this report. Treasury viewed inaction as a 

potentially costlier and riskier option because of the risk of a credit rating 

downgrade, which would have led to a disorderly failure of the firm. 

Creating a more durable capital structure for AIG that allows the company 

time and flexibility to dispose of its noncore assets continues to be a main 

goal of the restructuring process. The Federal Reserve noted that it 

expects the disposition of assets to be the principal way by which AIG will 

repay government funds lent by FRBNY, recoup equity investments made 

by Treasury, and pay other expenses associated with the government’s 

efforts. AIG noted in public reports that through the third quarter of 2009, 

it had completed dispositions and asset sales of an estimated $5.9 billion in 

total proceeds, which we discuss later in the report. 

To address concerns about the systemic risk posed by AIG’s potential 

disorderly failure, the Federal Reserve and Treasury have agreed to make 

over $182 billion of federal assistance available to AIG since September 

2008. This assistance was intended to stabilize AIG by providing it with a 

reliable source of liquidity to allow for an orderly restructuring of its 

operations. While some of the assistance was designated for specific 

purposes—such as reducing the debt outstanding to the Federal Reserve 

or establishing SPVs created by FRBNY to purchase specific assets such as 

CDOs and RMBS—other assistance was provided to enable AIG to meet 

the general corporate needs of the parent company and its subsidiaries. 

Finally, the government made investments in AIG to stabilize its capital 

position. Table 1 provides an overview of the various forms of assistance, 

the purpose of each form of assistance, the amounts authorized, the 

amounts loaned or used for investments, and the outstanding balance as of 

September 2, 2009. 

The Federal Reserve, 

FRBNY, and Treasury 

Have Taken a Variety 

of Steps to Stabilize 

AIG 

Page 27 GAO-09-975 Troubled Asset Relief Program
 

Table 1: U.S. Government Efforts to Assist AIG and the Government’s Remaining Exposure, as of September 2, 2009 

Dollars in millions 

Amount of assistance 

authorized 

Description of the federal 

assistance Debt Equity

Outstanding 

balance 

Sources to repay the 

government 

Implemented 

Federal 

Reserve 

FRBNY created a Revolving 

Credit Facility to provide AIG a 

revolving loan that AIG and its 

subsidiaries could use to 

enhance their liquidity. In 

exchange for the facility and 

$0.5 million, a trust received 

Series C preferred stock for the 

benefit of the Treasury, which 

gave Treasury a 77.9 percent 

voting interest in AIG. 

$60,000a

$38,792.5 Proceeds from dispositions of 

AIG businesses, internal cash 

flows, and restructuring part of 

the Revolving Credit Facility from 

debt into equity. The initial fee 

paid by AIG was reduced by $0.5 

million to pay for the Series C 

shares and will not be repaid. 

FRBNY created an SPV—

Maiden Lane II—to provide 

AIG liquidity by purchasing 

RMBS from AIG life insurance 

companies. FRBNY provided a 

loan to Maiden Lane II for the 

purchases. FRBNY also 

terminated its securities 

lending program with AIG, 

which had provided additional 

liquidity associated with AIG’s 

securities lending program 

when it created Maiden Lane II. 

22,500 16,899 Proceeds from asset sales in 

Maiden Lane II will be used to 

repay the FRBNY loan. 

FRBNY created a SPV called 

Maiden Lane III to provide AIG 

liquidity by purchasing CDO’s 

from AIG Financial Products’

counterparties in connection 

with the termination of credit 

default swaps. FRBNY again 

provided a loan to the SPV for 

the purchases. 

30,000 20,196 Proceeds from asset sales in 

Maiden Lane III will be used to 

repay the FRBNY loan. 

Page 28 GAO-09-975 Troubled Asset Relief Program
 

Dollars in millions 

 Amount of assistance 

authorized 

 

Description of the federal 

assistance Debt Equity

Outstanding 

balance 

Sources to repay the 

government 

Treasury Treasury purchased Series D 

cumulative preferred stock 

from AIG. AIG used the 

proceeds to pay down part of 

the Revolving Credit Facility. 

Series D shares were later 

exchanged for Series E 

noncumulative preferred 

shares. Unpaid dividends on 

the Series D shares were 

added to the Treasury’s equity 

in the Series E shares. 

40,000 41,605 Proceeds from dispositions of 

AIG businesses and internal 

cash flows of AIG. 

Treasury purchased Series F 

noncumulative preferred 

shares of AIG and is allowing 

AIG to draw up to $29,835 

million through an equity facility 

to meet its liquidity and capital 

needs. Amounts drawn by AIG 

represent the cost of the 

federal equity interest in these 

shares. 

29,835 3,206b

 Proceeds from dispositions of 

AIG businesses and internal 

cash flows of AIG. 

Subtotals $112,500 $69,835

Total authorized and 

outstanding assistancec

$182,335 $120,698.5 

Pending AIG created two SPVs to hold 

the shares of two of its foreign 

life insurance businesses to 

enhance AIG’s capital and 

liquidity, and facilitate an 

orderly restructuring of AIG. 

The Revolving Credit Facility 

will be reduced by the amount 

of preferred equity interest in 

the SPVs to be received by 

FRBNY. 

0 25,000d

0 Proceeds from the public sale of 

the common stock in the SPV 

could be used to buy out the 

federal preferred equity and/or 

pay down part of the Revolving 

Credit Facility. 

AIG will create SPVs that will 

issue up to $8,500 million in 

notes to FRBNY which will be 

funded with a loan from 

FRBNY. AIG will use the 

proceeds to pay down part of 

the Revolving Credit Facility. 

8,500d

0 FRBNY’s loan to the SPVs will 

be repaid from cash flows of the 

life insurance policies. 

Source: AIG SEC filings, Federal Reserve, and Treasury data. 

a

The facility was initially $85 billion but was reduced to $60 billion in November 2008. 

Page 29 GAO-09-975 Troubled Asset Relief Program
 

b

Amount as of September 8, 2009. 

c

Does not include AIG’s participation in the Federal Reserve’s Commercial Paper Funding Facility. 

d

This transaction has not been completed and is not included in the total assistance provided to AIG 

because the amount of the Revolving Credit Facility will be decreased by an equal amount. 

FRBNY’s Revolving Credit 

Facility Provided AIG with 

a Source of Liquidity but 

Increased Its Debt, which 

Is Being Restructured 

through Several 

Subsequent Actions 

In September 2008 the Federal Reserve announced that, with the support 

of Treasury, it had authorized FRBNY to lend AIG up to $85 billion under 

the emergency provisions of Section 13(3) of the Federal Reserve Act. The 

amount was subsequently reduced to $60 billion as discussed below. This 

secured loan was structured as a revolving credit facility—a secured 

revolving loan or line of credit that AIG could use to meet its obligations 

as they came due.35 However, in light of ongoing concerns about AIG’s 

condition and the continued threat it posed to the stability of financial 

markets, this debt was subsequently restructured in November 2008 and 

again in March 2009. The term of the loan was initially 2 years but was 

subsequently extended to 5 years to allow AIG additional time to 

restructure its operations and repay the debt. 

AIG’s mounting debt—the result of borrowing from the Revolving Credit 

Facility—led to concerns that its credit ratings would be lowered, which 

would have caused its condition to deteriorate further. In response, the 

Federal Reserve and Treasury restructured AIG’s debt in November 2008. 

Under the restructured terms, Treasury purchased $40 billion shares of 

AIG preferred stock (the Series D securities purchase agreement 

discussed later in this report), and the cash from the sale was used to pay 

down a portion of AIG’s outstanding balance. The limit on the Revolving 

Credit Facility was also reduced from $85 billion to $60 billion. This 

restructuring was critical to helping AIG maintain its credit ratings. 

In March 2009, the Federal Reserve and Treasury announced plans to 

further restructure AIG’s assistance. Consistent with earlier assistance, 

this restructuring also was designed to enhance AIG’s capital and liquidity 

to facilitate orderly restructuring of the company. According to the 

Federal Reserve, the facility is to be reduced in exchange for the FRBNY’s 

receipt of preferred interests in two special purpose vehicles created by 

AIG to hold the outstanding common stock of two life insurance holding 

company subsidiaries of AIG—ALICO valued at about $9 billion and AIA 

 

35As a condition of providing the loan, FRBNY took a number of steps aimed at protecting 

the government’s interest, including the creation of a trust to hold the Series C preferred 

shares, which we discuss later. 

Page 30 GAO-09-975 Troubled Asset Relief Program
 

valued at about $16 billion. The valuation for FRBNY’s preferred stock 

interests, which was set at $25 billion in June 2009 when the agreements 

were finalized, is a percentage of the fair market value of ALICO and AIA 

as determined by FRBNY. AIG expects to close these transactions by early 

2010 pending the appropriate regulatory approvals and desirable market 

conditions. While this transaction will lower the amount of AIG’s debt to 

FRBNY, it shifts the debt to equity interest in AIG subsidiaries and does 

not decrease the government’s overall risk exposure. For the details of the 

terms of the AIA and ALICO agreement, see appendix II. 

FRBNY Creates Two New 

Lending Facilities, Maiden 

Lane II and III, to Relieve 

Liquidity Pressures 

Related to Two Portfolios 

of Mortgage-Related 

Assets 

To help resolve AIG’s ongoing liquidity issues, the Federal Reserve 

authorized FRBNY to create two new facilities to purchase some of AIG’s 

more troubled assets. AIG’s securities lending program continued to be 

one of the greatest ongoing demands on its liquidity, and on November 10, 

2008, FRBNY announced plans to create a RMBS facility—Maiden Lane II 

LLC—to purchase RMBS assets from AIG’s U.S. securities lending 

collateral portfolio. According to FRBNY, this facility was established to 

prevent continuing liquidity strains on AIG. The Federal Reserve 

authorized FRBNY to lend up to $22.5 billion to Maiden Lane II; AIG also 

acquired a subordinated, $1 billion interest in the facility, which will 

absorb the first $1 billion of any losses. On December 12, 2008, FRBNY 

extended a $19.5 billion loan to Maiden Lane II to fund its portion of the 

purchase price of the securities. The facility purchased $39.3 billion face 

value of the RMBS directly from AIG subsidiaries (domestic life insurance 

companies).36 As of September 18, 2009, the amount owed was $17.1 

billion. 

By October 2008, AIG had used $72 billion of the $85 billion available 

under the Revolving Credit Facility. To provide it with additional liquidity, 

the Federal Reserve authorized FRBNY to borrow securities from certain 

regulated U.S. life insurance subsidiaries of AIG. Under this program, 

FRBNY was authorized to borrow up to $37.8 billion in investment-grade, 

fixed-income securities from AIG in return for cash collateral. These 

securities had previously been lent by AIG’s life insurance company 

subsidiaries to third parties. This program provided AIG with another 

source of liquidity to pay its obligations associated with its securities 

 

36In response to questions about the purchase prices paid for these securities SIGTARP is 

reviewing how the purchase prices of the securities were determined. 

Page 31 GAO-09-975 Troubled Asset Relief Program
 

lending program, one of its major sources of liquidity problems.37 It also 

enabled AIG to use the remainder of the Revolving Credit Facility for other 

liquidity needs. This agreement was terminated in December 2008 

simultaneously with the closing of the Maiden Lane II transaction. 

The FRBNY loan to Maiden Lane II is expected to be repaid with the 

proceeds from the interest and principal payments or proceeds from the 

liquidation of the assets held by the facility. Accordingly, the Federal 

Reserve has not set a date for selling the assets; rather it has indicated that 

it is prepared to hold the assets to maturity if necessary. Until this time, 

the government’s investment remains exposed to risk of loss. Payments 

are to be made in the following order, and each category must be fully paid 

before proceeding to the next category: 

1. necessary costs and expenses of Maiden Lane II, plus a cash reserve 

for future expenses; 

2. all principal on the FRBNY loan; 

3. all interest on the FRBNY loan; 

4. up to $1 billion of deferred consideration to AIG’s Life Insurance 

Companies; and 

5. interest due on the deferred consideration to AIG’s life insurance 

companies. 

If Maiden Lane II has paid in full its obligations to FRBNY and AIG’s life 

insurance companies, any remaining proceeds will be distributed between 

FRBNY and the life insurance companies. FRBNY is to receive 

approximately 83 percent of the remaining proceeds, while the AIG life 

insurance subsidiaries are to receive 17 percent of any remaining 

proceeds. 

Also on November 10, 2008, FRBNY announced plans to create a separate 

facility—Maiden Lane III LLC—to purchase multi-sector CDOs on which 

 

37AIG’s domestic life insurance companies participated in a securities lending program 

through which they would loan securities to investors for cash collateral. In turn, AIG 

invested the cash collateral in RMBS. When these investors returned the borrowed 

securities and demanded their cash collateral, AIG was unable to sell the securities at 

prices needed to meet their obligations under current market conditions. 

Page 32 GAO-09-975 Troubled Asset Relief Program
 

AIGFP had written CDS contracts. This facility was aimed at facilitating 

the restructuring of AIG by addressing the greatest threat to AIG’s 

liquidity. In connection with the purchase of the CDOs, AIG’s CDS 

counterparties agreed to terminate the CDS contracts.38 The Federal 

Reserve authorized FRBNY to lend up to $30 billion to Maiden Lane III. On 

November 25, and December 18, 2008, FRBNY extended a total of $24.3 

billion in loans to Maiden Lane III; AIG also paid $5 billion equity interest 

in Maiden Lane III and would absorb the first $5 billion of any losses. 

The FRBNY loan to Maiden Lane III is expected to be repaid with the 

proceeds from the maturity or liquidation of the assets in the facility. As 

with Maiden Lane II, the repayment will occur through cash flows from the 

underlying securities as they are paid off. Similarly, the Federal Reserve 

may hold the assets to maturity. Until this time, the government’s 

investment remains exposed to risk of loss. Payments from the portfolio 

holdings of Maiden Lane III will be made in the following order and each 

category must be fully paid before proceeding to the next category: 

1. necessary costs and operating expenses of Maiden Lane III; 

2. amounts due under certain currency hedging transactions; 

3. amounts to fund a reserve for necessary expenses payable by Maiden 

Lane III between monthly payment dates; 

4. amounts to fund a reserve for payments that may be incurred by 

Maiden Lane III in connection with management of CDO defaults; 

5. all principal due on the FRBNY loan; 

6. all interest due on the FRBNY loan; 

7. a release to Maiden Lane III, to repay AIG’s $5 billion equity 

contribution; 

 

38AIGFP sold CDS on multi-sector CDOs. As a result, to unwind these contracts, Maiden 

Lane III was created to purchase the CDOs from AIG’s CDS counterparties. In exchange for 

purchasing the underlying assets, the counterparties agreed to terminate the CDS contracts 

thereby eliminating the need for AIG to post additional collateral as the value of the CDOs 

fell. 

Page 33 GAO-09-975 Troubled Asset Relief Program
 

8. a release to Maiden Lane III, to pay distributions accruing to AIG on its 

equity contribution; and 

9. amounts due under certain currency hedging transactions to the extent 

the counterparty to the hedge is in default. 

After Maiden Lane III has paid in full FRBNY and all other outstanding 

secured obligations, any remaining proceeds will be distributed between 

FRBNY’s and AIG’s subsidiaries. FRBNY will receive 67 percent of the 

remaining proceeds, while the AIG subsidiaries will receive 33 percent of 

any remaining proceeds. 

Also in March 2009, FRBNY was authorized to make new loans under 

section 13(3) of the Federal Reserve Act of up to an aggregate amount of 

approximately $8.5 billion by acquiring notes issued by the special purpose 

vehicles that will be established by certain AIG domestic life insurance 

subsidiaries. As announced, the special purpose vehicles are to repay the 

notes from the net cash flows they receive from designated blocks of 

existing life insurance policies issued by the insurance companies. 

Effectively, these net cash flows are a portion of the operating profits of 

the life insurance companies. The proceeds of the notes would pay down 

an equivalent amount of outstanding debt under the Revolving Credit 

Facility. Therefore, this amount has no effect on the total government 

exposure. The amounts lent, the size of the haircuts taken by FRBNY, and 

other terms of the notes are to be determined based on valuations FRBNY 

deems acceptable.39 Federal Reserve officials said that they are working to 

complete the transactions with AIG. 

FRBNY Also Can Provide 

Credit to AIG Subsidiaries but 

Intends to Reduce the 

Revolving Credit Facility by an 

Equivalent Amount 

Treasury’s OFS Is Using 

TARP’s SSFI Program to 

Invest in AIG 

On November 10, 2008, Treasury’s OFS announced plans to use its SSFI 

program, under TARP, to purchase $40 billion in AIG preferred shares. 

AIG entered into an agreement with Treasury on November 25, 2008, 

whereby Treasury agreed to purchase $40 billion of fixed-rate cumulative 

preferred stock of AIG (Series D) and received a warrant to purchase 

approximately 2 percent of the shares of AIG’s common stock.40 As 

 

39The haircut is the difference between the value of the collateral and the value of the loan. 

This haircut is calculated based on a percentage of the collateral value and varies by asset 

class. 

40Treasury also took a number of additional steps to protect the government’s interests, 

which we discuss later. 

Page 34 GAO-09-975 Troubled Asset Relief Program
 

previously discussed, the proceeds of this sale were used to pay down 

AIG’s outstanding balance on the Revolving Credit Facility by the same 

amount.41 This transaction left the government’s overall exposure 

unchanged but allowed AIG to reduce its debt outstanding and increase its 

equity position by $40 billion. The rating agencies viewed this structure as 

more favorable. And as noted previously, AIG and FRBNY also agreed to 

reduce the amount available to borrow under the Revolving Credit Facility 

from $85 billion to $60 billion. 

On April 17, 2009, AIG and Treasury entered into an agreement in which 

Treasury agreed to exchange its $40 billion of Series D cumulative 

preferred stock for $41.6 billion of Series E fixed-rate noncumulative 

preferred stock of AIG, allowing for a reduction in leverage and dividend 

requirements. The $1.6 billion difference between the initial aggregate 

liquidation preference of the Series D stock and the aggregate liquidation 

preference of the Series E stock represents a compounding of 

accumulated but unpaid dividends owed by AIG to Treasury on the Series 

D stock. Because the Series E preferred stock more closely resembles 

common stock, principally because its dividends are noncumulative, rating 

agencies viewed the stock more positively when rating AIG’s financial 

condition. 

Also on April 17, 2009, Treasury provided a $29.835 billion Equity Capital 

Facility to AIG whereby AIG issued to Treasury 300,000 shares of fixedrate noncumulative perpetual preferred stock (Series F) and a warrant to 

purchase up to 3,000 shares of AIG common stock. As AIG draws on the 

Equity Capital Facility, the aggregate liquidation preference of the Series F 

stock is adjusted upward.42 As of September 8, 2009, AIG had drawn down 

$3.2 billion of the commitment. 

 

41Cumulative preferred stock is a form of capital stock in which holders of preferred stock 

receive dividends before holders of common stock receive dividends, and dividends that 

have been omitted in the past must be paid to preferred shareholders before common 

shareholders can receive dividends. 

42The securities purchase agreement indicates that the amount of $29.835 billion is equal to 

$30 billion minus $165 million in retention payments made by AIGFP, AIG Trading Group, 

Inc., and their respective subsidiaries to their employees in March 2009. 

Page 35 GAO-09-975 Troubled Asset Relief Program
 

Federal assistance to the private sector includes accountability measures 

to help ensure that Congress and the public can have confidence that the 

assistance is used in a manner consistent with the identified objectives 

and that the government’s interests are being protected. In previous work 

we have identified fundamental principles that can serve as a framework 

for considering federal government financial assistance to large firms.43

One of the key principles of this framework is to protect the government’s 

interests. Given the significant financial exposure the government may 

assume, any federal assistance to the private sector should include 

appropriate mechanisms to protect taxpayers from excessive or 

unnecessary risks. 

In Providing 

Assistance to AIG, the 

Federal Reserve and 

Treasury Have Taken 

Steps to Protect the 

Government’s 

Interest, but Risks 

Still Remain 

In crafting the government’s loans to and investments in AIG, the Federal 

Reserve and Treasury have taken a number of actions aimed at protecting 

the government’s interests, including (1) making loans that are secured 

with collateral; (2) instituting certain controls over management, including 

loan covenants and restrictions on executive compensation; and (3) 

obtaining compensation for risks, including dividends, interest, and fees. 

The Federal Reserve and Treasury have also appointed staff and hired 

advisors to monitor the operations of AIG and routinely receive periodic 

reports about the status of its condition and restructuring. However, while 

these actions may serve to help protect the government’s interests, risks 

remain. 

All FRBNY Loans Are 

Secured by AIG Assets 

In lending to AIG, FRBNY has drafted credit agreements that contain 

provisions for securing the loans. FRBNY took AIG’s pledge of a portion of 

its assets, including its ownership interests in its domestic and foreign 

insurance subsidiaries, as collateral on the Revolving Credit Facility. 

Moreover, when the facility was reduced from $85 billion to $60 billion at 

the November 2008 restructuring, the posted collateral remained 

unchanged. While FRBNY believes that the pledged collateral is generally 

sufficient to repay the debt AIG owes to FRBNY, AIG’s ability to divest its 

assets to make repayment relies heavily on conditions in financial 

markets. Moreover, as discussed above, the Federal Reserve expects to 

reduce AIG’s outstanding debt by accepting a preferred ownership interest 

in certain AIG life insurance holding companies in lieu of a cash payment. 

 

43GAO, Auto Industry: A Framework for Considering Federal Financial Assistance, 

GAO-09-242T (Washington, D.C.: Dec. 4, 2008); Auto Industry: A Framework for 

Considering Federal Financial Assistance, GAO-09-247T (Washington, D.C.: Dec. 5, 2008); 

and GAO-09-553. 

Page 36 GAO-09-975 Troubled Asset Relief Program
 

While the amount of debt would be reduced, FRBNY will assume 

investment risk that FRBNY may lose on the amount of the investment. 

While AIG Continues to 

Manage the Company, the 

Federal Reserve and 

Treasury Have Instituted 

Certain Controls over 

Management 

While the government has not taken over management of AIG, it has taken 

a number of steps to create certain controls over AIG’s management of the 

company. For example, FRBNY has used its rights as a creditor to work 

with AIG’s new management team to help wind down AIGFP and to 

oversee AIG’s restructuring and divestiture strategy. Due to the 

government’s large loans to and investments in AIG, FRBNY has observer 

status at board of director meetings and Treasury has certain rights to 

elect directors. The Federal Reserve noted in its September 2008 report 

that following the implementation of the Revolving Credit Facility, FRBNY 

had regular contact with AIG senior management, and FRBNY 

representatives attended all AIG Board of Directors meetings as observers. 

According to the Federal Reserve, FRBNY, and Treasury, the Federal 

Reserve and FRBNY have 20-25 staff assigned to monitor AIG. FRBNY has 

also hired professional advisors to assist in monitoring AIG. FRBNY 

officials said they receive reports on a daily and weekly basis, in FRBNY’s 

role as a creditor, to track the ongoing performance of AIG. For example, 

reports include cash forecasts, liquidity updates, and regulatory 

developments. In addition, as Treasury’s investment in AIG has grown, the 

staff responsible for monitoring its condition and restructuring efforts 

have grown from 1 to 4. Like the Federal Reserve, Treasury also receives 

periodic reports as required by its securities purchase agreements. AIG 

told us, and the Federal Reserve and Treasury officials confirmed, that any 

substantial cash outlays are disclosed to the government before they 

occur. These measures were taken to help ensure that government staff 

are available to monitor the government’s large investment in the 

company. 

In addition, the Federal Reserve announced that, as a condition of 

establishing the initial $85 billion credit facility, a trust established for the 

sole benefit of the United States Treasury would become the majority 

equity investor in AIG.44 This was achieved through the establishment of 

an independent trust to manage Treasury’s equity interest in preferred 

 

44The Treasury’s equity interest is managed by three trustees. The trust agreement provides 

that the trust is for the sole benefit of the Treasury, which means that any property 

distributable to the Treasury as a beneficiary shall be paid to the Treasury for deposit into 

the U.S. Treasury General Fund as miscellaneous receipts. See AIG Credit Facility Trust 

Agreement, Section 1.01, January 16, 2009. 

Page 37 GAO-09-975 Troubled Asset Relief Program
 

shares (Series C) of AIG.45 When the trust agreement was executed in 

January 2009, the Series C stock was convertible into approximately 77.9 

percent of the issued and outstanding shares of common stock of AIG.46

Proceeds from the Credit Facility Trust are to go directly to the Treasur

for the benefit of taxpayers. The Credit Facility Trust is intended to 

prevent inherent conflicts of interest that could arise from direct 

government or Federal Reserve c

y 

ontrol of AIG. 

 

The three trustees who manage the trust are required to be independent of 

the Federal Reserve and FRBNY, and all have corporate management 

experience. According to the terms of the Credit Facility Trust agreement, 

the trustees are responsible for managing the AIG equity stake in matters 

such as voting and rights associated with shareholders, but they are to 

leave day-to-day management of AIG to its officers. For example, 

according to Treasury officials with whom we spoke, the trustees used 

their voting power to vote in a majority of new board members who 

subsequently hired a new chief executive officer in August 2009. However, 

FRBNY and Treasury continue to have their own relationship and conduct 

their own monitoring of AIG operations. The trustees are also accountable 

for developing a plan to dispose of the shares over time. FRBNY is also 

working with Treasury and the trustees to ensure that AIG reviews and 

updates its corporate governance. While the Credit Facility Trust was 

intended to protect the taxpayers’ interests, the agreement clearly holds 

AIG responsible for the day-to-day operations and management of the 

company and makes the trustees autonomous from outside influence. 

Some in Congress have questioned the trust structure and whether it 

should be used as a model for providing government assistance to other 

big companies. We are conducting a joint review with SIGTARP of the 

government’s management and governance of its ownership interests and 

plan to address these issues as part of that ongoing work. 

45See FRBNY press release announcing the establishment of the AIG Credit Facility Trust, 

http://www.newyorkfed.org/newsevents/news/markets/2009/an090116.html. 

46Under the terms of the Series C preferred stock issuance, the preferred stock is 

convertible into AIG’s common stock. The conversion formula provides that the trust will 

receive 79.9 percent of AIG’s common stock on, less the percentage of common stock that 

may be acquired by or for the benefit of Treasury as a result of warrants or other 

convertible preferred stock held by Treasury. Treasury received a warrant to purchase a 

number of shares equal to 2 percent of AIG’s common stock in connection with its 

purchase of Series D preferred stock, and an additional warrant to purchase AIG common 

stock in connection with its purchase of Series F preferred stock. Proceeds from the sale of 

the trust stock will be deposited in the U.S. Treasury General Fund. 

Page 38 GAO-09-975 Troubled Asset Relief Program
 

As another protective measure, the FRBNY loan agreement includes 

covenants to prevent AIG from engaging in actions that would be 

detrimental to the loans provided and ultimately the government’s 

interests. For example, the loan agreement precludes AIG from incurring 

additional debt, paying dividends, and making capital expenditures 

without the approval of FRBNY. Moreover, Treasury’s securities purchase 

agreements further restrict AIG’s ability to declare dividends, lobby, and 

repurchase stock as long as Treasury has equity in the company. Also as 

part of its equity investments, Treasury required that if AIG does not pay 

dividends due for four dividend periods, consecutive or not, Treasury will 

be able to directly elect the greater of two directors or a number of 

directors equal to 20 percent of the total number of directors to the AIG 

Board of Directors. As of September 2009, AIG had not declared and paid 

the three scheduled dividend payments since the inception of the 

preferred equity investments.47 According to Treasury, if AIG fails to make 

its next dividend payment due on November 1, Treasury will be able to 

directly elect at least two board members. 

Finally, Congress, the Federal Reserve, and Treasury have taken steps to 

limit executive compensation.48 According to the Federal Reserve 

Chairman, the Federal Reserve has pressed AIG to ensure that all 

compensation decisions are covered by robust corporate governance, 

including internal review, review by AIG’s Compensation Committee of 

the Board of Directors, and consultations with outside experts. Under this 

framework, and in agreement with Treasury, AIG has limited the salary, 

bonuses, and other types of compensation for senior management for 2008 

and 2009. Moreover, Congress, Treasury, and the New York Attorney 

General have also imposed restrictions on compensation at AIG. 

Following the $165 million payout of retention bonuses to AIGFP staff in 

March 2009, AIG now vets payouts of bonuses with Treasury. AIG has yet 

to make its scheduled July 2009 retention bonus payment pending 

feedback from Treasury. See appendix III for a complete discussion of 

Treasury’s executive compensation requirements. 

 

47AIG only has to make dividend payments when it declares dividends. 

48SIGTARP has an ongoing audit that will provide an in-depth assessment of AIG’s 

executive compensation programs and the adequacy of federal oversight of these 

programs. 

Page 39 GAO-09-975 Troubled Asset Relief Program
 

The Federal Reserve and Treasury have taken a number of steps to ensure 

they will be compensated for the risks they are assuming on behalf of AIG. 

First, FRBNY required an initial gross commitment fee of 2 percent 

totaling an estimated $1.7 billion.49 In addition, FRBNY is charging interest 

on the outstanding balance of the Revolving Credit Facility as well as any 

unused commitment. Initially, the rate on outstanding balances was the 3-

month London Interbank Offered Rate, with a 3.5 percent minimum. As 

part of the November 2008 restructuring, the interest rate on the loan was 

reduced to the London Interbank Offered Rate plus 3 percent, and the 

unused commitment fee was reduced to an annualized rate of .75 percent 

from 8.5 percent.50 In March 2009 the 3.5 percent minimum rate 

requirement was removed. While the Federal Reserve viewed the 

restructured terms of the assistance as necessary to address AIG’s 

continued challenges following the initial assistance, some critics 

questioned whether they eroded the government’s interests. FRBNY will 

receive less compensation for its risk exposure, but in light of AIG’s 

continued reliance on the facility to pay its continuing obligations, 

including interest and commitment fees on the facility, the Federal 

Reserve concluded that restructuring the debt was in the government’s 

interest. 

The Federal Reserve and 

Treasury Have Taken a 

Number of Steps to Help 

Ensure That They Will Be 

Compensated for the Risks 

Involved in the Assistance 

Second, the Federal Reserve negotiated that upon repayment of 

outstanding loans made by FRBNY to Maiden Lanes II and III, and AIG’s 

subordinated interest in the SPVs, approximately 83 percent and 67 

percent, respectively, of any residual income will be apportioned to 

FRBNY, with the remainder going to AIG. In addition, according to the 

Federal Reserve, AIG also cannot receive any return on its stakes in these 

vehicles until the FRBNY loans have been repaid in full. Thus, AIG is also 

required to take the first loss up to a predetermined amount should there 

be any losses.51

Third, AIG is also required to pay dividends of 10 percent per annum on 

Treasury’s cumulative preferred share investment.52 While the March 2009 

 

49A gross commitment fee normally is paid at the initiation of a credit facility agreement 

and is a percentage of the total amount committed by a lender to the borrower. 

50An unused commitment fee is a percentage of the unused, or undrawn, portion of a 

revolving credit facility or loan commitment. 

51Under the agreements, AIG is to incur the first $1 billion in losses under Maiden Lane II 

and the first $5 billion under Maiden Lane III. 

52See Securities Purchase Agreement, Nov. 25, 2008. 

Page 40 GAO-09-975 Troubled Asset Relief Program
 

restructuring authorized AIG to convert the shares from cumulative 

preferred shares to noncumulative preferred shares, thereby providing 

AIG relief from paying dividends on the preferred shares when dividends 

are not declared, it did not decrease the 10 percent requirement.53

Additionally, the accrued but unpaid dividends from the initial capital 

investment were added to the amount outstanding for purposes of the 

stock conversion. Treasury viewed the conversion as necessary to further 

stabilize AIG and protect financial markets and protect its investment. AIG 

is scheduled to make a dividend payment in November 2009; however, 

there is no indication as to whether AIG will declare and make this 

payment. 

Fourth, as part of the various purchases of equity from AIG, Treasury 

obtained warrants in connection with each capital commitment.54 The 

initial $40 billion capital injection under the SSFI program specified that 

Treasury would receive a warrant to purchase 2 percent of the then issued 

and outstanding shares of common stock with an exercise, or purchase, 

price of $2.50 per share. Similar to other TARP investments, this warrant 

has a term of 10 years. These terms remained when the Series D shares 

were exchanged for the Series E shares in April 2009. As noted above, the 

agreement establishing the Equity Capital Facility also provided that 

Treasury would receive a warrant to purchase common stock equal to 

3,000 shares of the then issued and outstanding shares of common stock 

with an exercise price of $2.50 per share. 

Finally, FRBNY has agreed to obtain an equity interest in certain AIG life 

insurance subsidiaries by accepting preferred ownership interests in AIG 

life insurance holding companies to facilitate an alternative means to 

recoup a portion of FRBNY’s loan to AIG. While the equity interest will 

give the government an opportunity for upside gain, it also will continue to 

expose the government to risk that its investment may not be recouped. 

 

53See Securities Exchange Act, April 17, 2009. 

54If the Secretary of the Treasury purchases troubled assets under the act from a publicly 

traded financial institution, section 113(d)(1)(A) of the act, 12 U.S.C. § 5223(d), requires 

that it receive a warrant giving the Secretary the right to receive nonvoting common stock 

or preferred stock, or voting stock for which Treasury agrees not to exercise voting power. 

The act requires that the warrant or senior debt instrument be designed to provide for the 

reasonable participation by the Secretary, for the benefit of taxpayers, in equity 

appreciation (in the case of a warrant) or a reasonable interest rate (in the case of a debt 

instrument). The warrant is also to provide additional protection for the taxpayers against 

losses from the sale of assets by the Secretary under the act and the administrative 

expenses of TARP. 

Page 41 GAO-09-975 Troubled Asset Relief Program
 

The long-term value of stakes in the companies to be held by FRBNY will 

also depend on the companies’ performance and eventual valuation by the 

market or prospective buyer. 

Despite Efforts to Protect 

the Government, Some 

Risks Remain 

Despite these efforts, the Federal Reserve and Treasury continue to carry 

significant exposure as a result of the assistance to AIG. Until the debt is 

repaid and the equity interests are repurchased or sold, the Federal 

Reserve and Treasury remain exposed to credit and investment risks. The 

ongoing potential of systemic risk remains a concern until AIG is 

restructured and market conditions improve. According to Treasury, “an 

orderly restructuring is essential to AIG’s repayment of the support it has 

received from U.S. taxpayers and to preserving financial stability.” 

However, an orderly restructuring depends heavily on AIG’s ability to 

successfully divest assets. According to AIG’s former chief executive 

officer, AIG’s plan is to sell businesses that constitute almost 65 percent of 

the company and employ approximately 70,000 people. According to 

Treasury officials, the current chief executive officer is re-evaluating this 

plan. 

In March 2009, the Federal Reserve and Treasury most recently noted their 

commitment to AIG in order to avoid future market disruptions and have 

acknowledged that AIG’s ability to sell its assets depends on financial 

markets continuing to stabilize and its assets maintaining their market 

value. While this level of government commitment has helped AIG 

maintain its key credit ratings, which are important for AIG’s ongoing 

financial stability and restructuring efforts, it also exposes the government 

to risks that must continue to be monitored and managed. In addition, the 

Federal Reserve’s interest as a creditor must be appropriately balanced 

with those of Treasury as an investor. We have ongoing work with 

SIGTARP that will more fully address how the government is managing its 

investments in AIG and other institutions that have received extraordinary 

assistance. 

Page 42 GAO-09-975 Troubled Asset Relief Program
 

Troubled Asset Relief Program

While the federal assistance provided to AIG has helped stabilize its 

operations, a number of variables will continue to affect the company’s 

ability to restructure its business and repay the government. AIG’s 

recovery depends not only on the long-term health of the company but 

also on market conditions, and other factors. Consistent with our 

mandated responsibilities to assess the effectiveness of TARP programs 

and our development of macroeconomic indicators of TARP’s overall 

effectiveness, we have developed a number of microeconomic indicators 

to help Congress and the public monitor the level of financial risk posed 

by AIG and the status of AIG’s restructuring and repayment efforts. Our 

indicators track the following elements: 

• status of AIG’s financial condition, 

• status of the wind down of AIGFP, 

Federal Assistance 

Has Helped Stabilize 

AIG’s Financial 

Condition, but 

Indicators Suggest 

that It Is Too Soon to 

Evaluate AIG’s Ability 

to Restructure Its 

Business and Repay 

the Government 

• financial condition AIG’s insurance subsidiaries, and 

• amount of repayment of federal assistance. 

The indicators, which are discussed in detail in appendix V, are designed 

to help guide Congress and the public in their oversight efforts and raise 

questions for AIG, Treasury, and Federal Reserve officials about observed 

trends and the status of progress toward achieving desired goals. Because 

no single indicator provides a definitive measure of AIG’s progress, they 

should be considered collectively and evaluated in the context of the 

ongoing situation. Moreover, these indicators should not be viewed as 

exhaustive, and there may be other indicators, such as those that track the 

market value of AIG’s assets, that also would provide insights into the 

status of AIG’s operations and ability to repay. We plan to continue to 

refine these indicators and to provide periodic updates as part of our 

ongoing oversight of TARP. 

Federal Assistance Has 

Been Key to Helping 

Stabilize AIG’s Financial 

Condition 

While AIG’s financial condition stabilized or improved in the second 

quarter of 2009 by several measures—including liquidity, credit ratings, 

shareholders’ equity, and operating income—most of this improvement 

was attributable to the assistance it received from the Federal Reserve and 

Treasury. 

• Liquidity. AIG’s primary sources of liquidity continue to be the FRBNY 

Revolving Credit Facility and Treasury’s equity facility. While the longterm goal is for the company to be able to acquire its liquidity from private 

Page 43 GAO-09-975 
 

sources and its own operations instead of the government, AIG remains 

heavily reliant on federal assistance to meet its liquidity needs. 

• Credit ratings. Overall, AIG’s credit ratings have remained stable since 

May 2009, due in part to the support of the government. Although Fitch’s 

credit ratings of AIG in the long-term debt, property/casualty insurer, and 

life insurer categories were lower in May 2009 than in March 2009, AM 

Best, Moody’s, and Standard & Poor’s (S&P) maintained the same ratings 

in those categories.55 Fitch’s downgrades did not have a major effect on 

AIG’s its insurance business. However, if AIG becomes unable to meet its 

obligations, rating agencies could downgrade the company’s key credit 

ratings, which could impede its restructuring efforts. Conversely, an 

upgrade in AIG’s credit ratings would indicate an improvement in its 

condition. 

• Shareholders’ equity. Trends, level, and composition of AIG’s 

consolidated shareholders’ equity—generally a company’s total assets 

minus total liabilities—are also indicators of solvency. The efforts of AIG, 

FRBNY, and Treasury to restructure the composition of the federal 

assistance have reduced AIG’s debt and boosted its shareholders’ equity. 

Moreover, the largest contributor to leveling off shareholders’ equity has 

been paid-in capital primarily associated with the federal assistance and 

investment.56 In the second quarter of 2009, AIG’s accumulated deficits 

were cut to $3.1 billion from of $16.7 billion in the previous quarter. 

• Operating income and losses. Operating income and losses include the 

profits or losses generated by AIG’s operating companies and provide a 

measure of AIG’s financial condition. A large portion of AIG’s losses in the 

second half of 2008 were associated with investment losses in its life 

insurance and retirement services subsidiaries. Another significant portion 

of AIG’s operating losses in the fourth quarter of 2008 resulted from 

interest expense and fees on the FRBNY Revolving Credit Facility, which 

totaled over $10 billion. In the first quarter of 2009, these losses were cut 

dramatically due to the sale of certain assets to the Maiden Lane facilities 

created by FRBNY, the unwinding of portions of AIGFP’s portfolio of 

assets, and the restructuring of the assistance provided to AIG, which 

reduced its debt and the interest and fees paid on the debt. In the second 

 

55AIG’s long-term debt was rated at A-/Negative (S&P) and A3/Negative (Moody’s), and its 

short-term debt was rated at A-1 (S&P) and P-1 (Moody’s). 

56Paid-in capital is equity capital provided by investors in exchange for common or 

preferred stock. 

Page 44 GAO-09-975 Troubled Asset Relief Program
 

quarter of 2009, AIG reported an operating income before taxes of $1.3 

billion, compared to an operating loss of $8.8 billion in the same quarter of 

the previous year. Increased profitability in its various operating segments 

could improve AIG’s ability to sell its noncore assets, restructure its 

operations, and repay federal assistance, while increased losses could 

pose an ongoing threat to its viability. 

Maiden Lane III Enabled 

AIGFP to Unwind Most of 

Its Riskiest Positions and, 

with Other Unwinding 

Actions, Contributed to 

Progress in AIG’s Financial 

Strength 

FRBNY’s creation of Maiden Lane III enabled AIGFP to unwind its book of 

CDS that protects multi-sector CDOs, a major source of the liquidity 

strain.57 In the fall of 2008, AIGFP developed a strategy to unwind its 

derivatives portfolio in which it attempted to strike the most efficient 

balance between loss mitigation and the rapid unwinding of this portfolio. 

Initially, AIGFP focused on unwinding the riskiest books in its portfolio, 

and according to AIGFP, this goal has been substantially accomplished. 

Overall, AIGFP has fewer outstanding trade positions and fewer books of 

business. In addition, two areas that should be monitored closely—the 

amount of underlying CDOs rated below BBB and AIG CDS premiums—

only started to show signs of stabilizing in the second quarter of 2009. 

While AIGFP officials originally estimated that the unwinding of positions 

would take from approximately 2 to 4 years, they now believe that the 

majority of the unwinding can be completed by the end of 2009, provided 

the markets remain stable and AIG maintains its credit rating. 

AIGFP monitors the status of four indicators, which have all declined, 

indicating progress in winding down AIGFP’s operations (see app. V). 

First, the number of outstanding trade positions—the number of AIGFP’s 

outstanding long and short derivative contracts—has continued to decline. 

Second, the gross notional amount of derivatives outstanding, which is a 

measure of the size of AIGFP’s derivatives portfolio (not actual risk), has 

also continued to fall slightly. Third, 5 of the 22 businesses or risk books 

that AIGFP is winding down have “decreased.”58 Finally, the number of 

employees or the staff size of AIGFP, which may change for several 

 

57A multi-sector CDO is a CDO is backed by a combination of corporate bonds, loans, assetbacked securities, or mortgage-backed securities. 

58In its switch from growth and profit maximization to risk mitigation and unwinding, 

AIGFP reorganized its business into 22 separate risk books determined in part by type of 

risk, which fall into the following five groupings: (1) credit books, (2) investment securities 

and liabilities books, (3) capital markets books, (4) principal guaranty products, and (5) 

private equity and strategic investment books. According to AIG, decreased means a book 

of business that has reduced in size by at least 75 percent. 

Page 45 GAO-09-975 Troubled Asset Relief Program
 

reasons, such as the sale of businesses, closing offices, or employee 

resignations, has continued to decrease. 

We also found that AIGFP’s unwinding of its super senior CDS portfolio 

appears to be progressing, as indicated by the following measures:59

• The net notional amount has decreased over the past year, potentially 

indicating progress in unwinding AIGFP’s obligations.60

• The fair value of derivative liability has also decreased, indicating that the 

market views AIG’s liabilities as being less risky.61 This should enable 

AIGFP to eliminate these liabilities at less expense. 

• The unrealized market valuation gain or loss tracks the change in the fair 

value of AIGFP’s derivative liabilities from quarter to quarter. This value 

has fluctuated over the past year but trended upward in the second quarter 

of 2009, indicating a positive change in fair values. 

Activity in selected aspects in AIGFP’s portfolio also provides information 

about the status of AIGFP’s unwinding efforts. 

• AIGFP’s book of regulatory capital CDS that provide protection to 

European banks against default from certain loans on their balance sheets 

has seen a steady decline in the net notional amount since the fall of 2008 

and achieved a reduction in the fair value of the liabilities in the second 

quarter of 2009. Though these CDS contracts continue to have a high net 

notional value relative to the other types of products, AIGFP continues to 

believe that these contracts will expire or be called by counterparties with 

little to no cost to AIG. AIGFP does not plan to sell these contracts but 

plans to let them expire because management believes that trying to sell 

them would not be cost effective. 

 

59The super senior CDS portfolio was written on the super senior tranche of CDO. The 

super senior layer comprises assets that typically receive a rating between BBB and AAA 

from rating agencies. For additional information, see AIG 2008 10K p.132. 

60The net notional amount represents the maximum dollar level exposure for the portfolio. 

61The fair value of derivative liability represents the fair market valuation of AIGFP’s 

liabilities in each portfolio and provides an indicator of the dollar amount the market 

thinks AIGFP would need to pay to eliminate its liabilities. 

Page 46 GAO-09-975 Troubled Asset Relief Program
 

• The net notional and fair values of AIGFP’s CDS on multisector CDOs 

dropped in the fourth quarter of 2008 when most of the assets in this 

category were sold to Maiden Lane III. Moreover, the amount of assetbacked securities rated below BBB has been significantly lower following 

the sale of most of these assets to Maiden Lane III, which helped stabilize 

the multi-sector CDOs portfolio since the third quarter of 2008.62 However, 

with the exception of subprime mortgage-backed securities, from the 

fourth quarter of 2008 to the first quarter of 2009, the amount of underlying 

asset-backed securities rated below BBB rose in every category. By the 

second quarter some had begun to fall, but some remained elevated over 

2008 levels. This indicates deteriorating credit quality of its other holdings 

including prime, commercial, and Alt-A mortgage-backed securities. 

• Finally, AIGFP has also shown some modest progress in reducing its CDS 

portfolios relating to corporate collateralized loan obligation portfolio and 

mezzanine tranches. 

Another indicator of AIG’s financial strength is the price of purchasing 

CDS protection against AIG defaulting on senior unsecured debt. This 

indicator measures what the market believes is AIG’s probability of 

default. The higher the CDS premiums, the greater the market’s 

expectation that AIG will default. Conversely, the lower the CDS 

premiums, the lower the market’s expectation that AIG will default or the 

greater its confidence in AIG’s financial strength. AIG’s CDS premiums as 

of September 8, 2009, are lower than they were in the fourth quarter of 

2008, but it is too soon to say whether they are stabilizing. As the Federal 

Reserve noted, the premium on AIG’s CDS is based on both the market’s 

assessment of the government’s level of commitment to assist AIG as well 

as AIG’s financial strength. 

AIG’s Insurance 

Operations Show Some 

Signs of Recovery with the 

Life Insurance Companies 

Largely Aided by the 

Federal Assistance 

The success of AIG’s insurance operations is important to its restructuring 

plans. Indicators of their financial health have started to show signs of 

stabilizing and their long-term financial stability is vital to AIG’s 

restructuring plans and the ultimate repayment of assistance. However, it 

will take several quarters of data to be able to determine more meaningful 

trends. 

• Levels of capital. AIG’s property/casualty insurers and domestic life 

insurance and retirement services companies have maintained levels of 

 

62A rating of BBB indicates a lower medium grade investment. See appendix IV. 

Page 47 GAO-09-975 Troubled Asset Relief Program
 

capital higher than the minimum requirement set by NAIC. However, 

without the federal assistance provided to AIG’s domestic life and 

retirement companies associated with Maiden Lane II, the capital balance 

would not have been adequate to cover losses in 2008. Conversely, AIG’s 

property/casualty companies have maintained levels of adjusted capital in 

excess of requirements with virtually no direct federal assistance. 

• Income gains and losses. The life insurance and retirement services 

segment losses associated with investment activity through its securities 

lending program accounted for a significant portion of AIG’s losses in the 

fourth quarter of 2008. The federal assistance provided through Maiden 

Lane II helped enable this segment to realize income gains from operations 

and post a moderate income gain in the second quarter of 2009. 

• Withdrawals and deposits. In the fourth quarter of 2008, the life and 

retirement services segment saw a sharp decline in policyholders’ contract 

deposits and a large spike in withdrawals. However, without more 

granular data, we cannot determine whether the withdrawals were driven 

by concerns about the condition of AIG specifically or by the overall 

economic downturn, which may have resulted in policyholders cashing in 

policies for economic reasons. The almost $26 billion disparity between 

the withdrawals and deposits adversely affected the liquidity position of 

this segment in late 2008. However, the segment started to rebound in the 

first quarter of 2009 and by the second quarter of 2009, the gap had closed 

significantly to $3 billion, bringing the amounts closer to historical levels. 

However, withdrawals continue to outstrip deposits and should be 

monitored. 

• Premiums written. AIG’s property/casualty insurance businesses are 

expected to be AIG’s core business once it is restructured and divests 

other operations. Therefore, in monitoring the status of AIG’s 

restructuring efforts, premiums written in this segment provide an 

indicator of AIG’s ability to retain business and attract new business. 

However, this is not a perfect measure because multiple factors, including 

industry-wide factors such as softening or hardening markets, can affect 

premiums written. Nevertheless, changes in premiums written can also 

provide some indication of the success of AIG’s efforts to retain and 

attract business, such as the formation of Chartis, Inc. and effectively 

rebranding the company. Through 2007, 2008, and the first quarter of 2009, 

premiums written by AIG’s property and casualty subsidiaries trended 

downward, which closely followed the general industry trend. The current 

data are not clear as to whether this trend is leveling off. 

Page 48 GAO-09-975 Troubled Asset Relief Program
 

The U.S. government has committed around $182 billion in its efforts to 

prevent the failure of AIG.63 As of September 2, 2009, $120.9 billion had 

been used and, as discussed earlier in this report, the assistance has taken 

a variety of forms. Changes in the amount and composition of the federal 

assistance may provide insights about the overall condition of AIG and the 

extent of its reliance on federal assistance. The assistance falls into four 

broad categories: (1) debt owed by AIG to the government, (2) equity 

shares in AIG owned by the government, (3) other debt owe to the 

government on behalf of AIG, and (4) equity shares in AIG-related entities 

owned by the government. While most of the $120.9 billion in assistance 

provided as of September 2, 2008, has been a $38.8 billion secured loan 

balance to AIG via the FRBNY Revolving Credit Facility and Treasury’s 

approximately $45 billion purchase of preferred shares and outstanding 

balance on the equity facility, the government has also provided about $37 

billion in more indirect assistance by creating and making loans to Maiden 

Lanes II and III for the purchase of CDOs from AIG’s counterparties and 

residential mortgage-backed securities from AIG. The other forms of 

indirect assistance have not been completed as of September 2, 2009.64 For 

more detailed information, see appendix V. 

With Restructured Federal 

Assistance, AIG Has Begun 

to Repay Its Debt to the 

Government but the 

Success of These 

Repayment Efforts Is 

Unclear 

The outstanding amount AIG owes as of September 2, 2009, on the FRBNY 

Revolving Credit Facility is almost $39 billion, which includes loan 

principal, all capitalized interest and fees, and the amortized portion of 

FRBNY’s initial commitment fee.65 Since December 2008, the outstanding 

balance on the facility has remained fairly steady at around $40 billion. 

 

63This amount does not include AIG’s use of the Federal Reserve’s Commercial Paper 

Funding Facility. 

64As discussed earlier in the report, the Federal Reserve plans to further modify the 

assistance provided to AIG. For example, on March 2, 2009, the Federal Reserve and AIG 

announced their intent to enter into a transaction in which FRBNY will purchase up to $8.5 

billion of securitization notes issued by newly formed special purpose vehicles that will 

receive the net cash flows from a block of life insurance policies held by AIG’s domestic 

life insurance subsidiaries. When this transaction closes, AIG’s outstanding balance and 

maximum available amount to borrow on the facility is expected to be reduced by up to 

$8.5 billion. In addition, on June 25, 2009, the Federal Reserve and AIG entered into 

agreements in which AIG will transfer to FRBNY preferred equity interest in special 

purpose vehicles formed to hold AIA and ALICO. When this transaction is completed, the 

amount outstanding and the maximum amount available to borrow on the facility will be 

reduced by $25 billion. The maximum amount available under the FRBNY facility will be 

$25 billion as a result of a reduction from the AIA, ALICO, and securitization notes 

transactions. 

65Outstanding loans are the average weekly balance of credit extended to AIG under the 

Revolving Credit Facility, as reported by FRBNY. 

Page 49 GAO-09-975 Troubled Asset Relief Program
 

Changes in amounts owed on the facility fluctuate weekly and could 

indicate increased liquidity needs related to restructuring decisions or 

decreased liquidity needs, resulting in payments to the facility. Similar to 

the liquidity measure discussed earlier, the balance of the facility provides 

some indication of AIG’s ongoing reliance on federal assistance to fund its 

obligations. 

The Maiden Lane II and Maiden Lane III portfolios are funded primarily by 

loans from FRBNY, which are not debt owed by AIG but rather are to be 

repaid from the maturity or liquidation of assets held in each facility.66 The 

amount owed on the loans and their portfolio values peaked in December 

2008 and subsequently have trended downward.67 The Federal Reserve 

said it plans to hold on to the Maiden Lane assets until they mature or 

increase in value to a point where the Federal Reserve can maximize the 

amount of money recovered through a sale of assets. While the portfolio 

value has declined slightly, the Federal Reserve continues to believe that 

the assets held in the Maiden Lanes will appreciate over time and the 

Maiden Lanes will continue to receive payments of principal and interest 

on their portfolios before maturity or sale. As assets mature, are sold, or 

pay interest, any portion remaining after paying operating expenses of the 

Maiden Lanes goes toward the loan balance. These payments will reduce 

the amount of principal owed to the FRBNY. By monitoring these 

balances, we can track the status of AIG’s repayment of the assistance. As 

of September 2, 2009, proceeds from the Maiden Lanes had been used to 

pay down $6.8 billion of the outstanding principal. 

Finally, as part of AIG’s restructuring plan, the company is selling some of 

its businesses. Tracking the sales of AIG entities and net cash proceeds 

from these sales provides an additional indicator of the status of AIG’s 

restructuring efforts. AIG has realized $8.6 billion in total proceeds from 

sales as of September 30, 2009, $5 billion of which was cash. AIG plans to 

use the cash proceeds from these sales to meet its obligations, including 

the FRBNY Revolving Credit Facility, to cover capital needs, and to 

provide loans to its subsidiaries. As of May 1, 2009, AIG said that it had 

paid down $1.4 billion on the FRBNY Revolving Credit Facility from the 

proceeds of sales. AIG stated that it expects to have $4.6 billion available 

 

66The order in which payments will be made from the net portfolio holdings of these 

facilities is described in section two of this report. 

67The portfolio value is based on the market value of the underlying assets and will mirror 

the change in value of those assets. 

Page 50 GAO-09-975 Troubled Asset Relief Program
 

to pay toward the facility from the proceeds of sales that it has recently 

closed. Sales in 2009 have far surpassed those in 2008. 

As a result of the determination that AIG posed systemic risk to the 

financial system in light of the unfolding events of the last year, the 

Federal Reserve and Treasury have taken unprecedented steps to help 

stabilize AIG’s operations and allow for an orderly divestiture of its 

operations. While the second quarter of 2009 provided some signs of 

improvement over the first quarter, the company continues to rely heavily 

on the federal government as its source of liquidity and capital. AIG’s 

insurance companies have started to show some positive signs in the 

second quarter of 2009, but it is too early to determine a trend. Likewise, 

AIGFP has stated it has unwound a substantial amount of its riskiest 

books with expectations of unwinding the majority of its books by the end 

of 2009. AIG is continuing to sell some of its businesses, the Maiden Lanes 

have begun to make payments on their facilities, and Federal Reserve 

officials remain positive about future repayment from the Maiden Lanes. 

The sustainability of any positive trends of AIG’s operations and 

repayment efforts is not yet clear. The government’s ability to recoup the 

federal assistance money depends on the long-term health of AIG, its sales 

of certain businesses, and the maturation or sale of assets in the Maiden 

Lanes, among other factors. Although the Federal Reserve and Treasury 

have yet to develop specific milestones and targets for AIG’s progress, the 

Federal Reserve’s secured loan, which has a 5-year term, carries an 

implicit timeline. Treasury has publicly stated that it wants to sell its 

investments back to the companies in which it has invested under TARP as 

soon as possible. We will continue to monitor these issues in our future 

work. 

We provided a draft of this report to the Federal Reserve, FRBNY, and 

Treasury for comment. We also provided an informational copy to AIG for 

its review. We received written comments from Treasury that are 

reprinted in appendix I. The Federal Reserve and FRBNY did not provide 

written comments. We received technical comments from Treasury, the 

Federal Reserve, FRBNY, and AIG that are incorporated, as appropriate. 

Agency Comments 

and Our Evaluation 

In its written comments Treasury noted that it had no substantive 

comments on the report. 

Page 51 GAO-09-975 Troubled Asset Relief Program
 

We are sending copies of this report to the Congressional Oversight Panel, 

Financial Stability Oversight Board, SIGTARP, interested congressional 

committees and members, Treasury, the federal banking regulators, and 

others. The report also is available at no charge on the GAO Web site at 

http:www.gao.gov. 

Orice Williams Brown is our point of contact on this report. She can be 

reached at (202) 512-8678 or williamso@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on the 

last page of this report. GAO staff who made major contributions to this 

Gene L. Dodaro 

report are listed in appendix VI. 

Acting Comptroller General 

 of the United States 

Page 52 GAO-09-975 Troubled Asset Relief Program
 

List of Congressional Committees 

The Honorable Daniel K. Inouye 

Chairman 

The Honorable Thad Cochran 

Vice Chairman 

Committee on Appropriations 

United States Senate 

The Honorable Christopher J. Dodd 

Chairman 

The Honorable Richard C. Shelby 

Ranking Member 

Committee on Banking, Housing, and Urban Affairs 

United States Senate 

The Honorable Kent Conrad 

Chairman 

The Honorable Judd Gregg 

Ranking Member 

Committee on the Budget 

United States Senate 

The Honorable Max Baucus 

Chairman 

The Honorable Charles E. Grassley 

Ranking Member 

Committee on Finance 

United States Senate 

The Honorable David R. Obey 

Chairman 

The Honorable Jerry Lewis 

Ranking Member 

Committee on Appropriations 

House of Representatives 

The Honorable John M. Spratt, Jr. 

Chairman 

The Honorable Paul Ryan 

Ranking Member 

Committee on the Budget 

House of Representatives 

Page 53 GAO-09-975 Troubled Asset Relief Program
 

The Honorable Barney Frank 

Chairman 

The Honorable Spencer Bachus 

Ranking Member 

Committee on Financial Services 

House of Representatives 

The Honorable Charles B. Rangel 

Chairman 

The Honorable Dave Camp 

Ranking Member 

Committee on Ways and Means 

House of Representatives 

Page 54 GAO-09-975 Troubled Asset Relief Program
Appendix I: Comments from the Department Appendix I: Comments from the Department of the Treasury 

of the Treasury 

Page 55 GAO-09-975 Troubled Asset Relief Program 
Appendix II: Overview of the American 

International Assurance and American Life Appendix II: Overview of the American Insurance Company Transactions 

International Assurance and American Life 

Insurance Company Transactions 

In March 2009, the Board of Governors of the Federal Reserve System 

(Federal Reserve) and American International Group, Inc. (AIG) 

announced that two special purpose vehicles would be formed to hold all 

of the common stock in American International Assurance (AIA) and 

American Life Insurance Company (ALICO)—two life insurance 

companies—on behalf of the Federal Reserve Bank of New York 

(FRBNY). Upon closing of this transaction, AIG’s debt outstanding on the 

$60 billion Revolving Credit Facility created by FRBNY in September 2008 

would be reduced by $25 billion ($16 billion from AIA and $9 billion from 

ALICO).1

 AIG and FRBNY reached a final agreement on June 25, 2009, on 

the terms of the agreement, which is expected to close in 2009. Under the 

terms of the agreements, AIG will retain 100 percent of the common 

interests of the AIA and ALICO special purpose vehicles (SPV) but FRBNY 

will have a substantial ownership interest in the form of preferred 

interests in the SPVs. AIG will retain 100 percent of the voting power of 

the SPVs, including the right to appoint the boards of managers of both 

SPVs, but FRBNY will have certain governance rights. After the common 

stock of ALICO and AIA is transferred to the SPVs, the SPVs are expected 

to be sold or entered into an initial public offering. The proceeds from the 

sale or offering of AIA’s SPV will be divided in the following order and 

each category must be fully paid before proceeding to the next lower 

category (see fig. 4): 

1. pay the current quarter return on equity owed to FRBNY; 

2. pay 1 percent of net income for all previous years to FRBNY; 

3. pay the liquidation preference of $16 billion to FRBNY; 

4. pay $9 billion to the common members of the SPV, plus 99 times the 

amount paid in clause 2 above, plus the amount of any additional 

capital contributions made by the common members; and 

5. pay 99 percent of any remaining proceeds from the sale to the common 

members of the SPV. FRBNY is entitled to 1 percent of any remaining 

proceeds from the sale of the SPV. 

 

1

The ceiling on the Revolving Credit Facility was initially $85 billion but was subsequently 

lowered as part of the November 2008 restructuring. 

Page 56 GAO-09-975 Troubled Asset Relief Program
Appendix II: Overview of the American 

International Assurance and American Life 

Insurance Company Transactions 

Figure 4: AIG Restructuring and SPV Sale 

Source: GAO.

AIG

FRBNY

AIG

FRBNY

American International

Assurance Company (AIA)

SPV

American Life Insurance

Company (ALICO)

SPV

American Life Insurance

Company (ALICO)

SPV

American International

Assurance Company (AIA)

SPV

100%

common

interest

100%

common

interest

AIA preferred equity interest

(Liquidation preference: $16 billion)

-$16 billion on credit facility debt

-$9 billion on credit facility debt

ALICO preferred equity interest

(Liquidation preference: $9 billion)

100% common interest

• 100% voting power

• Right to appoint board of managers

Preferred interest

• Veto rights over certain 

significant actions

• Right to compel 

 certain actions

Proceeds from sale or initial public offering

Minus cost of paying back Federal Reserve's preferred equity interest

Minus cost of paying back AIG's common equity interest

Restructuring

Sale or public offering

Remaining

proceeds

Remaining

proceeds

99%

1%

95%

5%

Page 57 GAO-09-975 Troubled Asset Relief Program
Appendix II: Overview of the American 

International Assurance and American Life 

Insurance Company Transactions 

The proceeds from the sale of ALICO SPV will be divided in the following 

order and each category must be fully paid before proceeding to the next 

lower category (see fig. 4): 

1. pay the current quarter return on equity owed to FRBNY; 

2. pay the liquidation preference of $9 billion to FRBNY; 

3. pay $6 billion to the common members of the SPV, plus the amount of 

any additional capital contributions made by the common members; 

and 

4. pay 95 percent of any remaining proceeds from the sale to the common 

members of the SPV. FRBNY is entitled to 5 percent of any remaining 

proceeds from the sale of the SPV. 

According to Federal Reserve officials, the transfer of the preferred 

interest in the AIA and ALICO SPVs is expected to occur before the end of 

2009. FRBNY’s preferred interests will entitle it to limited veto rights over 

certain significant actions and the right, subject to certain restrictions, to 

compel the SPVs to take certain actions, including issuing an initial public 

offering or selling the SPVs. 

Page 58 GAO-09-975 Troubled Asset Relief Program
Appendix III: Overview of the Executive Appendix III: Overview of the Executive Compensation Restrictions 

Compensation Restrictions 

The Emergency Economic Stabilization Act of 2008 (the act) included 

limitations on executive compensation for firms participating in the 

Troubled Asset Relief Program (TARP). Accordingly, the November 25, 

2008, agreement between American International Group, Inc. (AIG) and 

the Department of the Treasury (Treasury) concerning the purchase of 

Series D preferred shares included a requirement that AIG comply with the 

act’s executive compensation requirements. Also on November 25, AIG 

announced its agreement to executive compensation restrictions that went 

beyond the act’s requirements. In addition to eliminating 2008 annual 

bonuses and salary increases through 2009 for AIG’s top management, and 

eliminating salary increases through 2009 for a group of senior executives, 

AIG also announced plans to develop a funding structure to ensure that no 

taxpayer dollars were used for annual bonuses or future cash performance 

awards to the top 60 members of management. The American Recovery 

and Reinvestment Act of 2009 (ARRA) restated and amended the act’s 

executive compensation provisions; the terms of Treasury’s subsequent 

investments in AIG require the firm to be in compliance with the act’s 

executive compensation and corporate governance requirements, as 

amended by ARRA, as well as any related guidance or regulations. 

On June 10, 2009, Treasury announced an interim final rule to implement 

the executive compensation and corporate governance provisions of the 

act, as amended by ARRA, as well as to adopt certain additional standards 

deemed necessary by the Secretary to carry out the purposes of the act.1

The interim final rule requires that recipients of TARP financial assistance 

meet standards for executive compensation and corporate governance. 

The requirements generally include 

• limits on compensation that exclude incentives for senior executive 

officers to take unnecessary and excessive risks that threaten the value of 

TARP recipients;2

 

1

TARP Standards for Compensation and Corporate Governance, 74Fed. Reg. 28, 394 (June 

15, 2009) (to be codified at 31 C.F.R. Part 30). Pursuant to section 101(c) of the act, the 

Secretary is authorized to issue regulations and other guidance that the Secretary deems 

necessary and appropriate to carry out the purposes of the act. The interim final rule 

became effective on June 15, 2009, and the public comment period ended on August 14, 

2009. 

2

The senior executive officers are generally the principal executive officer, the principal 

financial officer, and the three most highly compensated executive officers (other than the 

principal executive officer and the principal financial officer). 

Page 59 GAO-09-975 Troubled Asset Relief Program 
Appendix III: Overview of the Executive 

Compensation Restrictions 

• provision for the recovery of any bonus, retention award, or incentive 

compensation paid to a senior executive officer or the next 20 most highly 

compensated employees based on materially inaccurate statements of 

earnings, revenues, gains, or other criteria; 

• prohibition on making any large severance payments, or “golden 

parachute” payments, to a senior executive officer or any of the next 5 

most highly compensated employees; 

• prohibition on the payment or accrual of bonuses, retention awards, or 

incentive compensation to senior executive officers or certain highly 

compensated employees, subject to certain exceptions for payments made 

in the form of restricted stock; and 

• prohibition on employee compensation plans that would encourage 

manipulation of earnings reported by TARP recipients to enhance 

employees’ compensation. 

The new interim regulations also require the establishment of the Office of 

the Special Master for TARP Executive Compensation (Special Master) to 

address the application of the rules to TARP recipients and their 

employees. The duties and responsibilities of the Special Master with 

respect to TARP recipients of “exceptional assistance,” such as AIG, 

include reviewing and approving compensation payments and 

compensation structures applicable to the senior executive officers and 

certain highly compensated employees.3

 The Special Master will also have 

responsibility for administering the review of bonuses, retention awards, 

and other compensation paid to employees of TARP recipients before 

February 17, 2009, and the negotiation of appropriate reimbursements to 

the federal government. Finally, the interim final rule also establishes 

compliance reporting and record-keeping requirements regarding the 

rule’s executive compensation and corporate governance standards. While 

certain scheduled bonus payments are not subject to the interim final 

rule’s requirements or the jurisdiction of the Special Master, AIG has 

solicited Treasury’s input. As of September 15, 2009, Treasury had not 

provided an opinion. 

 

3

Under TARP, firms needing more assistance than is allowed under a widely available 

standard program are said to need “exceptional assistance;” firms falling under this 

standard have firm-specific negotiated agreements with Treasury. 

Page 60 GAO-09-975 Troubled Asset Relief Program
Appendix IV: Summary of Rating Agencies’ 

Ratings 

Page 61 GAO-09-975 

Appendix IV: Summary of Rating Agencies’ 

Ratings 

Grade and Quality Definitions Moody’sa

Standard & 

Poor’sb

Fitchb

Highest grade and quality There is an extremely strong capacity to 

meet financial commitments on the 

obligation and bonds have little 

investment risk. 

Aaa AAA AAA 

High grade and quality There is a very strong capacity to meet 

financial commitment on the obligation 

and bonds have very little investment risk, 

but margins of protection may be lower 

than with the highest grade bonds. 

Aa AA AA 

Upper medium grade and quality There is a strong capacity to meet 

financial commitment on the obligation 

and the principal and interest are 

adequately secured, but the bonds are 

more vulnerable to a changing economy. 

A A A 

Medium and lower medium grade There are adequate protections for these 

obligations but the bonds have investment 

and speculative characteristics. This 

group comprises the lowest level of 

investment grade bonds. 

Baa BBB BBB 

Noninvestment and speculative 

grades 

There is little protection on these 

obligations and the interest and principle 

may be in danger, where default may be 

likely. 

Ba1 and below BB+ and below BB+ and below 

Sources: Moody’s Investors Service, Standard & Poor’s Ratings Services, and Fitch Ratings. 

Notes: 

a

Moody’s Investors Service has numerical modifiers of 1, 2, and 3 in each rating classification from Aa 

to B: ‘1’ indicates that the issue ranks in the higher end of the category, ‘2’ indicates a mid-range 

ranking, and ‘3’ indicates that the issue ranks in the lower end of the category. 

b

Standard & Poor’s Ratings Services and Fitch Ratings: Ratings from ‘AA’ to ‘CCC’ may be modified 

by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating 

categories. 

Troubled Asset Relief Program 
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

We have developed several indicators intended to help monitor the 

financial risk posed by American International Group, Inc. (AIG) and the 

status of AIG repayment efforts. These indicators are identified and 

summarized below. 

Table 2: Overview of Indicators of AIG’s Financial Risk and Repayment of Federal Assistance 

Figure/ 

Table Indicator Purpose—to monitor: 

AIG 

Table 3 Credit Ratings Changes in key credit ratings 

Figure 5 AIG Inc.: Corporate Available Liquidity and Company-Wide 

Debt Projections 

The timing of potential future demand on AIG’s liquidity 

posed by its debt obligations 

Table 4 Sources and Amount of Available Corporate Liquidity The timing of potential future demand on AIG’s liquidity 

posed by its debt obligations 

Figure 6 AIG Inc.: Trends in and Main Components of Consolidated 

Shareholders’ Equity 

The trends, level, and composition of AIG’s equity capital 

as an indicator of solvency and capital adequacy 

Figure 7 AIG Inc.’s Operations by Major Segment: Operating 

Income/Losses Before Taxes 

The contribution of AIG’s operating segments to overall 

operating earnings or losses 

AIG Financial Products Corporation 

Figure 8 Status of the Winding Down of AIG’s Financial Products 

Business 

The status of the winding down of AIG Financial Product’s 

business 

Figure 9 AIGFP: Super Senior Credit Default Swap Portfolio Net 

Notional Amount, Fair Value of Derivative Liability, and 

Unrealized Market Valuation Gains and Loss 

The wind down of the AIG Financial Products’ Super Senior 

Credit Default Swap portfolio and value of corresponding 

liabilities 

Figure 10 AIGFP: Gross Notional Value of the Multi-Sector 

Collateralized Debt Obligations that Are Rated Less than 

BBB 

The credit quality of the underlying assets of AIGFP’s 

remaining Multi-Sector Collateralized Debt Obligation 

portfolio 

Figure 11 AIG Credit Default Swap Premiums What the market believes is AIG’s probability of default by 

tracking prices of 3-year and 5-year Credit Default Swaps 

insuring against AIG’s default 

AIG Insurance Companies 

Figure 12 AIG Insurance Subsidiaries: Regulatory (Adjusted) Capital 

and Primary Activities Affecting Stockholders’ Equity in 2008

The capital of AIG insurers for adequacy and additional 

losses that could further deplete capital and require 

additional capital contributions by the federal government 

Figure 13 AIG Life and Retirement Services: Additions to and 

Withdrawals from Policyholder Contract Deposits Including 

Annuities, Guaranteed Investment Contracts, and Life 

Products 

For potential redemption “runs” by AIG annuitants and 

policyholders 

Figure 14 AIG Life Insurance and Retirement Services: Key Quarterly 

Revenues and Expenses 

The profitability of AIG’s life insurance and retirement 

services companies as AIG arranges their disposition 

Figure 15 AIG General Insurance: Premiums Written by Division Business retention and new business activity of AIG 

property/casualty insurance businesses 

Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

Page 62 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

Figure/ 

Table Indicator Purpose—to monitor: 

Figure 16 AIG Property/Casualty Insurance: AIG Commercial 

Insurance Operating Ratios and AIG Foreign General 

Insurance Operating Ratios 

Operating performance of major domestic and foreign AIG 

property/casualty insurance businesses 

Repayment of Federal Assistance 

Table 5 Composition of U.S. Government Efforts to Assist AIG and 

the Government’s Remaining Exposure 

The changes to the composition of assistance and amount 

that AIG is obligated to repay the government 

Figure 17 FRBNY Revolving Credit Facility Balance Owed and Total 

Amount Available 

AIG’s outstanding balance owed to the Revolving Credit 

Facility established by the Federal Reserve Bank of New 

York 

Figure 18 Principal Owed and Portfolio Values of Maiden Lane 

Facilities 

Repayment of Federal Reserve Bank of New York loans to 

purchase AIG assets and the portfolio values of these 

assets 

Figure 19 Proceeds from Dispositions by Quarter To monitor proceeds including cash from dispositions, 

which is part of AIG’s strategy to repay federal assistance. 

Table 6 Dispositions Closed and Agreements Announced but not yet 

Closed 

To monitor the status of dispositions, which part of AIG’s 

strategy to repay federal assistance. 

Source: GAO. 

Indicators of AIG’s 

Financial Condition 

Credit Ratings. This indicator monitors key changes in AIG’s credit 

ratings (see table 3). Credit ratings measure a company’s ability to repay 

its obligations and directly affect the cost and availability to that company 

of unsecured financing. Downgrades in the ratings can affect AIG’s major 

insurance operations as well as AIG’s liquidity and ability to restructure. 

AIG noted that a downgrade on its credit ratings could likely result in 

downgrades on insurer financial strength ratings for the AIG life and 

property/casualty companies. AIG also noted that a downgrade could 

result in further declines in credit limits and in counterparties’ willingness 

to transact with AIG (to hedge their portfolios, for example). 

Overall, the government’s assistance has helped keep AIG’s credit ratings 

relatively stable since May 2009. Although Fitch Ratings (Fitch) 

downgraded AIG in the long-term debt, property and casualty insurer, and 

life insurer categories on May 15, 2009, Moody’s Investors Service 

(Moody’s) and Standard & Poor’s Ratings Services (S&P) maintained the 

same rating in those categories. Therefore, Fitch’s downgrade did not have 

a major effect on AIG’s access to capital or its counterparty relationships. 

Page 63 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

Table 3: Credit Ratings, as of March 31, 2009, and May 15, 2009 

Credit rating 

Rating agency Mar. 31, 2009 May 15, 2009 Potential consequences of future downgrade 

Debt 

Long-term 

S&P A-/NegativeaA-/Negativea

Moody’s A3/NegativeaA3/Negativea

Fitch A BBB/Evolving 

AIG Financial Products Corporation (AIGFP) would have to 

post collateral and termination payments. The total 

obligations depend on the market and other factors at the 

time of the downgrade. For example: 

• By close of business on Feb. 18, 2009, a 1-notch, 2-

notch, or 3-notch downgrade from S&P and Moody’s 

would have cost AIGFP $8 billion, $10 billion, or $11 

billion, respectively. 

• By close of business on Mar. 31, 2009, a 1-notch, 2-

notch, or 3-notch downgrade from S&P and Moody’s 

would have cost AIGFP $4.2 billion, $8.2 billion, or $9.2 

billion, respectively. 

• By close of business on May 22, 2009, a 1-notch, 2-

notch, or 3-notch downgrade from S&P and Moody’s 

would have cost AIGFP $3.8 billion, $6.8 billion, or $7.7 

billion, respectively. 

Short-term 

S&P A-1 for AIG Funding, 

Curzon, and 

Nightingalea

A-1 for AIG Funding, 

Curzon, and 

Nightingalea

AIG affiliates in commercial paper programs (AIG Funding, 

Curzon Funding LLC, and Nightingale LLC) could be 

ineligible for participation in the Commercial Paper Funding 

Facility (CPFF). 

Note: AIG’s International Lease Finance Corporation lost 

access to CPFF funds after an S&P downgrade on Jan. 21, 

2009. 

Moody’s P-1 for AIG FundingaP-1 for AIG Fundinga

Fitch F1 F1 

Financial strength 

Life insurer 

AM Best A/NegativeaA/NegativeaDomestic retirement services would be severely affected by a 

high surrender rate and further suspension of sales in some 

firms, and would suffer a significant loss of wholesalers. 

S&P A+/Negative A+/Negative Domestic life new business would be severely affected, in 

several instances forcing the company to exit businesses 

that serve either the high-net-worth marketplace or 

businesses that are governed by trust contracts. The 

company would need to continue to dedicate key resources 

to retention and management of existing relationships. 

Moody’s A1/developing A1/developing 

Fitch AA- A-/Evolving 

Page 64 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

 Credit rating 

Rating agency Mar. 31, 2009 May 15, 2009 Potential consequences of future downgrade 

P&C insurer 

AM Best A/NegativeaA/NegativeaAIG commercial property/casualty businesses expect that a 

financial strength rating downgrade would result in a loss of 

approximately 50 percent of the net premiums written and 

operating losses for the domestic business. For the foreign 

businesses, a downgrade could cause regulators to further 

strengthen operational and capital requirements. Staff 

retention could become a key issue, and premiums would 

deteriorate significantly. 

S&P A+/Negative A+/Negative 

Moody’s Aa3/Negative Aa3/Negative 

Fitch AA- A+/Evolving 

Sources: AIG Securities and Exchange Commission (SEC) filings; S&P, Fitch, Moody’s, and AM Best press releases; and AIG. 

a

These are key ratings. 

AIG: Corporate Available Liquidity and Company-Wide Debt 

Projections. This indicator monitors the timing of potential future 

demand on AIG’s liquidity posed by its debt obligations (see fig. 5 and 

table 4). These liquidity measures reflects AIG’s ability to meet its cash 

payment needs. A decrease in available liquidity, or an increase in debt, 

could increase the risk of insolvency. Sources of available liquidity provide 

an indication of how AIG obtains the funds needed to meet its obligations. 

The greater the portion of current available liquidity provided by AIG’s 

own operations, the less reliant they are on federal assistance. 

AIG’s liquidity has increased primarily because of federal assistance. As 

illustrated in figure 5, in order to assist AIG with its liquidity needs, the 

Federal Reserve Bank of New York (FRBNY) modified the original 

repayment date for the Revolving Credit Facility from 2010 to 2013. The 

amount owed on the facility also decreased as a result of AIG using the 

proceeds of its sales of preferred stock to the Department of the Treasury 

(Treasury) to pay down the outstanding balance on the facility. As 

discussed earlier in this report, AIG is expected to have similar decreases 

in the future as assets are sold and/or its debt is restructured. 

Page 65 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

Figure 5: AIG: Corporate Available Liquidity and Company-Wide Debt Projections 

(dollars in millions), Third Quarter of 2008 through Second Quarter of 2009 

Source: AIG SEC filings.

Q3 - 2008

Corporate

available

liquidity

(as of date)

Company-wide debt maturing in:

2009 2010 2011 2012 2013 Thereafter

$10,756 $13,230 $14,517 $21,690

$62,960

Federal

Reserve

facility

$28,057 $33,420

(11/5/08)

$61,882

Q4 - 2008

$9,865 $8,861 $15,212 $17,492

$40,431

Federal

Reserve

facility $21,581 $26,653

(2/18/09)

$58,193

Q1 - 2009

$16,999 $15,080

$47,405

Federal

Reserve

facility

$17,741

$49,620

(4/29/09)

$53,710

$9,598 $8,430

Q2 - 2009

$17,204 $15,355

$44,816

Federal

Reserve

facility

$13,809

$52,585

(7/29/09)

$53,783

$9,786 $8,575

Notes: Available liquidity is at the corporate level and debt maturing is at the corporate and operating 

division levels. Much of the debt of the operating divisions is associated with assets serving as 

collateral or funding sources; thus repayment of this debt is not likely to rely on corporate liquidity. 

The figures exclude borrowings on consolidated investments that were less than 3.5 percent of total 

long-term borrowings. 

Page 66 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

Table 4: Sources and Amounts of Available Corporate Liquidity at November 5, 2008; February 18, 2009; April 29, 2009; and 

July 29, 2009 

Dollars in millions 

Nov. 5, 2008 Feb. 18, 2009 Apr. 29, 2009 July 29, 2009

FRBNY Revolving Credit Facility $24,000 $24,800 $17,400 $20,000

Commercial paper under CPFF and syndicated & bilateral 

facilities 5,600 753 1,940 3,493

Unused bank syndicated & bilateral facilities 3,820

AIG Cash and short-term investments 1,100 445 407

Treasury Equity Facility 29,835 28,685

Total $33,420 $26,653 $49,620 $52,585

Sources: Sept. 30, 2008 10Q, Dec. 31, 2008 10K, Mar. 31, 2009 10Q, and June 30, 2009 10Q. 

AIG: Trends in and Main Components of Consolidated 

Shareholders’ Equity. This indicator is intended to monitor the trends, 

level, and composition of AIG’s Consolidated Shareholders’ Equity as an 

indicator of solvency (see fig. 6). Shareholders’ equity is generally a 

company’s total assets minus total liabilities. Paid-in capital is equity 

capital provided by investors in exchange for common or preferred stock. 

Stabilizing or decreasing deficits could indicate AIG’s operating 

profitability is recovering. 

As figure 6 shows, AIG’s shareholders’ equity fell throughout 2008 and the 

first quarter of 2009. In the second quarter of 2009, this trend reversed as 

the company saw an increase in shareholders’ equity. However, paid-in 

capital, primarily from government assistance, was the largest contributor 

to this change in shareholders’ equity.1

 AIG’s accumulated deficit for the 

second quarter of 2009 improved to $3.1 billion from $16.7 billion in the 

previous quarter. In September 2008, AIG, through a non-cash transaction, 

added $23 billion to shareholders’ equity as additional paid-in capital to 

record the fair value of Series C preferred shares that was later issued in 

 

1

Paid-in capital is equity capital provided by investors in exchange for common or 

preferred stock. 

Page 67 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

order to obtain AIG’s Revolving Credit Facility established by FRBNY.2 On 

December 31, 2008, AIG added $40 billion to shareholders’ equity as 

additional paid-in capital to record the issuance of AIG Series D preferred 

shares and a warrant to Treasury. As mentioned previously, the $40 billion 

in proceeds were used to pay a portion of AIG’s debt owed on the FRBNY 

credit facility. To the extent that AIG improves its profitability, 

accumulated deficits should shrink and become retained earnings. 

Figure 6: AIG: Trends in and Main Components of Consolidated Shareholders’ Equity, Fourth Quarter of 2007 through Second 

Quarter of 2009 

-20,000

0

20,000

40,000

60,000

80,000

100,000

Q4 Q1 Q2 Q3 Q4 Q1 Q2

Dollars in millions

Source: AIG SEC filings.

2007 2008 2009

Retained earnings/accumulated deficits

Additional paid-in capital

Total shareholders’ equity

$89,029

$95,801

$79,703 $78,088

$71,182

$52,710

$45,759

$57,958

$79,732

$73,743

$49,291

$39,503

$79,468 $79,318 $80,259

-$16,706

-$3,073

-$12,368

$9,940

$16,448

$9,850

 

2

This amount was based on the fair value of common shares into which the Preferred 

Series C would be convertible on September 16, 2008, which was the date on which AIG 

received FRBNY’s commitment. AIG also recorded this amount as a prepaid commitment 

fee for the $85 billion credit facility to be treated as an asset to be amortized as interest 

expense over the 5-year term of the FRBNY facility. The only cash involved in this 

transaction was $500,000 that FRBNY paid for the Series C preferred shares. Through June 

30, 2009, $10.2 billion of this asset was amortized through the accumulated deficit and thus 

reduced shareholders equity. 

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Repayment Indicators 

Note: Other components of total shareholders’ equity are preferred stock (Series C preferred stock), 

Series D (preferred stock, which was exchanged in April 2009 for Series E preferred shares), 

accumulated other comprehensive losses, and Treasury stock. Drawdowns from the approximately 

$29 billion authorized under the Series F preferred stock transaction will increase paid-in capital in the 

future by an equal amount. 

AIG’s Operations by Major Segment: Operating Income/Loss Before 

Taxes. This indicator is intended to monitor the contribution of AIG’s 

operating segments to overall operating earnings or losses (see fig. 7). 

Operating income/losses include the profits or losses generated by the 

operating companies. Increased profitability in these segments could 

improve AIG’s ability to sell its noncore assets, restructure its operations, 

and repay federal assistance, while increased losses could create a greater 

risk of insolvency. The insurance data include both investment and 

underwriting performance. 

Federal assistance allowed AIG to stay in business and cut its losses in late 

2008 and early 2009. In the second quarter of 2009, AIG achieved moderate 

income gains from its operations. As shown in figure 5, over half of the 

losses in the fourth quarter of 2008 and over 82 percent of the losses in the 

third quarter of 2008 were associated with the financial services and life 

insurance and retirement services segments. AIG’s general insurance 

business continued to earn a profit in the first half of 2008 and had the 

lowest losses among the major segments thereafter. In the first quarter of 

2009, losses were cut by nearly 90 percent largely due to the creation of 

the Maiden Lane facilities and the unwinding of portions of AIGFP’s 

portfolio of assets. The “Other” segment in figure 7 was also a major factor 

in the fourth quarter 2008 losses. Specifically, 82 percent of the losses in 

this segment resulted from interest expense and fees on the FRBNY 

Revolving Credit Facility. In the second quarter of 2009, AIG reported an 

operating income before taxes of $1.3 billion compared to an operating 

loss of $8.8 billion in the same quarter of the previous year. 

Page 69 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

Figure 7: AIG’s Operations by Major Segment: Operating Income/Loss Before 

Taxes, First Quarter of 2008 through Second Quarter of 2009 

-65,000

-55,000

-45,000

-35,000

-25,000

-15,000

-5,000

5,000

Q1 Q2 Q3 Q4 Q1 Q2

Dollars in millions

2008 2009

-$11,264

-$8,772

-$8,756

-$5,905

-$28,185

-$15,329

-$8,203

-$60,556

-$12,899

-$6,478

-$17,941

-$17,885

-$6,368

$1,319

Other

Asset management

Financial services

Life insurance and retirement services

General insurance

Source: AIG SEC filings.

0

Q1 2009

Q2 2009

-$2,739

-$633

General insurance: $-1

-$1,122

-$1,873

$971

$1,818

-$1,337

-$89

-$222

Notes: The insurance data include both investment and underwriting performance. 

The “Other” category includes consolidations and eliminations, equity earnings in partly owned 

companies, interest expense on the FRBNY facility, other interest expenses, unallocated corporate 

expenses, net realized capital gains/losses, and other miscellaneous expenses (net). Compounding 

interests and fees of the FRBNY facility were $10.6 billion and $1.5 billion in 2008-q4 and 2009-q1, 

respectively. 

Indicators of the Status of 

Winding Down AIG 

Financial Products 

Status of the Winding Down of AIG’s Financial Products’ Business.

This indicator is intended to monitor the wind-down status of AIG 

Financial Products Corporation (AIGFP). The status of winding down of 

AIGFP’s business is illustrated by four indicators (see fig. 8). First, the 

number of outstanding trade positions is the number of AIGFP’s 

outstanding long and short (positions) derivative contracts. This number 

has continued to decline, and AIGFP continues to unwind its books of 

business. Second, the notional of derivatives outstanding is the maximum 

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Repayment Indicators 

dollar level exposure of AIGFP’s derivatives outstanding, which has also 

continued to fall slightly. Third, the number of businesses is the number of 

risk books that AIGFP is winding down. In its switch from growth and 

profit maximization to risk mitigation and unwinding, AIGFP reorganized 

its business into 22 separate risk books determined in part by type of risk, 

which fall into the following five groupings: (1) credit books, (2) 

investment securities and liabilities books, (3) capital markets books, (4) 

principal guaranty products, and (5) private equity and strategic 

investment books. The number of books has decreased from 22 to 17. 

Finally, the number of employees is the staff size of AIGFP, which may 

change for several reasons, such as the sale of businesses, closing offices, 

or employee resignation. 

Figure 8: Status of the Winding Down of AIG’s Financial Products Corporation, as 

of September 30, 2008; December 31, 2008; and March 31, 2009 

Source: Testimony by Mr. Edward M. Liddy, Chairman and Chief Executive Officer, AIG, before the House Financial Services

Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, March 18, 2009, and AIG Restructuring 

Update, May 7, 2009.

Approximate

number of

outstanding

trade

positions

September 30, 2008 December 31, 2008 March 31, 2009

35,000

44,000

28,000

Gross notional of 

long and short

derivatives

 positions outstanding

(dollars in trillions)

$1.6 $1.8 $1.5

Number

of

businesses

(risk books)

21 22

17

Number of

employees

375 428 362

Note: These figures have not been publicly updated by AIG since they were released in the May 7, 

2009 Restructuring Update. Due to Financial Accounting Standard 161, AIGFP changed its 

methodology for computing the gross notional for March 2009 leading to a slight increase of 

previously reported values. September and December notionals were estimated and restated 

numbers were 2.0 and 1.8, respectively. The March number was 1.5. 

AIG Financial Products: Super Senior Credit Default Swap 

Portfolio Net Notional Amount, Fair Value of Derivative Liability, 

and Unrealized Market Valuation Gains and Losses. This indicator is 

Page 71 GAO-09-975 Troubled Asset Relief Program
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Repayment Indicators 

intended to monitor the wind-down of the AIGFP Super Senior Credit 

Default Swaps (CDS) portfolio and value of corresponding liabilities (see 

fig. 9). Notional denotes the size on which AIGFP wrote credit protection. 

This is the maximum dollar-level exposure for the portfolio and represents 

an underlying quantity upon which payment obligations are computed. A 

decrease in the net notional amount could indicate progress in unwinding 

AIGFP’s obligations. The fair value of derivative liability represents the fair 

market valuation of AIGFP’s liabilities in each asset portfolio. The 

unrealized market valuation loss (gain) tracks the increase (decrease) in 

this valuation from quarter to quarter. A decrease in the fair value of 

derivative liability represents a decrease in the cost to AIGFP to transfer 

the respective derivatives to other counterparties in any effort to reduce 

its liabilities (i.e., the risk associated with the liabilities is viewed more 

favorably in the marketplace and reflects increased willingness to hold the 

liabilities). Therefore, such a decrease would be accompanied by 

comparable unrealized market valuation gains. 

The unwinding of this portfolio appears to be progressing, with a decrease 

in the net notional amount of Super Senior CDS portfolio, a decrease in 

the fair value of derivative liability, and increases in unrealized market 

valuation. The net notional amount represents the maximum dollar level 

exposure for the portfolio taking into account offsetting positions, and 

measures an underlying quantity upon which payment obligations are 

computed. As with the overall portfolio, a decrease in the net notional 

amount could indicate progress in unwinding AIGFP’s obligations. 

The regulatory capital book of positions was written for European banks 

and allows the banks to keep lower reserves by buying protection against 

losses on the underlying assets. This book provides protection to the 

banks against default from their clients. AIGFP continues to believe that 

these positions will unwind at little to no cost, even though these positions 

continue to have a high net notional value relative to the other types of 

products. Figure 9 shows a large drop in the net notional and fair values of 

the multi-sector collateralized debt obligations from the third quarter to 

the fourth quarter of 2008. This decrease largely resulted from federal 

assistance through the sale of most of the underlying assets in this 

category to Maiden Lane III and the termination of the related CDS. 

Finally, figure 9 shows that AIGFP has also shown some modest progress 

in reducing the CDS portfolio relating to its corporate collateralized loan 

obligation portfolio and mezzanine tranches. 

Page 72 GAO-09-975 Troubled Asset Relief Program
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Repayment Indicators 

Figure 9: AIGFP: Super Senior Credit Default Swap Portfolio Net Notional Amount, Fair Value of Derivative Liability, and 

Unrealized Market Valuation Gains and Loss, Third Quarter of 2008 through Second Quarter of 2009 

0

50,000

100,000

150,000

200,000

250,000

Dollars in millions

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Source: AIG SEC filings and AIG.

0

50,000

100,000

Dollars in millions

0

25,000

50,000

Dollars in millions

Net

notional

amount

Fair

value

of

derivative

liability

Unrealized

market

valuation

gain/loss

Regulatory capitala

Multi-sector

collateralized debt

obligationsb

Corporate collateralized

loan obligationsc Mezzanine tranchesd

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2008

Q4

2008

Q1

2009

Q2

2009

Q3

2008

Q4

2008

Q1

2009

Q2

2009

$249,947

$234,449

$192,554$177,473

$71,644

$12,556 $11,984 $9,151

$50,678 $50,495 $49,601 $40,941

$5,013 $4,701 $4,217 $3,501

$397 $379 $393

$30,207

$5,906 $6,715 $1,534 $2,554 $2,196 $153 $195 $182

$272 ($18) ($14)

$47

$23 $6,262 $5,832 ($809)

$5,271

($284) $538 $1,020 $358

$1,104

$792 ($18) $42 $13

$77

$105

Notes: The data for unrealized market valuation gain/loss correspond to the indicated 3-month 

quarter. The unrealized market valuation loss (gain) tracks the increase (decrease) in this valuation 

from quarter to quarter. 

a

Regulatory capital represents the CDS portfolio sold to provide regulatory capital relief to primarily 

European financial institutions. In exchange for a periodic fee, these institutions received credit 

protection for a portfolio of diversified loans, thus reducing minimum capital requirements set by their 

regulators. 

b

Multi-sector collateralized debt obligations (CDOs) represent the CDS portfolio sold primarily for 

arbitrage purposes and written on CDO transactions that generally had underlying collateral of 

residential mortgage-backed securities, commercial mortgage-backed securities, and CDO tranche 

securities. 

Page 73 GAO-09-975 Troubled Asset Relief Program
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Repayment Indicators 

c

The corporate collateralized loan obligations portfolio consists of CDS transactions primarily written 

on portfolios of senior unsecured loans. 

d

Mezzanine tranches are a portfolio of CDS transactions written on obligations that were rated less 

than investment grade “A or lower” at origination. 

AIGFP: Gross Notional Value of Multi-Sector Collateralized Debt 

Obligations That Are Rated Less than BBB. This indicator is intended 

to monitor the credit quality of the underlying assets of AIGFP’s remaining 

multi-sector CDO portfolio, since the amount of future collateral postings 

is most significantly affected by declines in the market value of these 

underlying assets (see fig. 10). AIG has indicated that in most cases, the 

assets in AIGFP’s multi-sector CDS portfolio were rated at least BBB (by 

S&P) or Baa (by Moody’s) at inception. An increase in the percentage of 

the gross notional amount of the portfolio rated less than BBB represents 

deterioration in the credit quality of the underlying assets, and could 

increase demands on liquidity. 

The amount of asset-backed securities rated below BBB experienced a $19 

billion drop in the fourth quarter of 2008, primarily due to federal 

assistance through Maiden Lane III. However, from the fourth quarter of 

2008 to the first quarter of 2009, the amount of asset-backed securities 

rated below BBB rose in every category except subprime mortgage-backed 

securities, indicating deteriorating credit quality of these holdings. The 

categories contributing to the largest amount of increase were commercial 

mortgage-backed securities and Alt-A residential mortgages. In the second 

quarter of 2009, these amounts started to level off, but prime residential 

mortgage-backed securities continued to increase. 

Page 74 GAO-09-975 Troubled Asset Relief Program
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Repayment Indicators 

Figure 10: AIGFP: Gross Notional Value of Underlying Multi-Sector Collateralized 

Debt Obligations That Are Rated Less Than BBB, Third Quarter of 2008 through 

Second Quarter of 2009 

0

5,000

10,000

15,000

20,000

25,000

30,000

Q3 - 2008 Q4 - 2008 Q1 - 2009 Q2 - 2009

Dollars in millions

Other

Commercial mortgage-backed securities

Prime residential mortgage-backed securities

CDOs

Alt-A residential mortgage-backed securities

Subprime residential mortgage-backed securities

Total of asset-backed securities

Total gross notional value (not pictured above)

$87

683

716

4,414

3,329

17,710

$26,939

$108,452

$100

666

128

1,547

651

4,910

$8,002

$25,036

$144

1,001

142

1,798

2,687

4,398

$10,170

$24,008

$182

1,224

1,183

1,383

2,661

3,753

$10,406

$19,813

Source: AIG SEC filings.

$26,939

(24.8% total

gross notional)

$8,002

(32% total

gross

notional)

$10,170

(42.4% total

gross

notional)

$10,406

(52.5% total

gross

notional)

AIG Credit Default Swap Premiums. This indicator is intended to 

monitor what the market believes is AIG’s probability of default by 

tracking prices of 3-year and 5-year CDS insuring against AIG’s default 

(see fig. 11). This graphic tracks the premiums, expressed in basis points, 

paid by an insured party against a possible AIG default on a senior 

unsecured bond and the spreads between the 3-year and 5-year premiums. 

A basis point is a common measure used in quoting yield on bills, notes, 

and bonds and represents 1/100 of a percent of yield. Higher basis point 

levels indicate a higher premium for a CDS contract. The higher the CDS 

premium rises, the greater the market’s expectation that AIG will default. 

Decreases in CDS premiums could indicate increased confidence in AIG’s 

financial strength. 

Page 75 GAO-09-975 Troubled Asset Relief Program
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Repayment Indicators 

AIG’s CDS premiums are lower in the second quarter of 2009 than they 

were in the fourth quarter of 2008, but it is too soon to say whether they 

are stabilizing. As the Federal Reserve noted, the market is trying to judge 

the government’s level of commitment because the government’s backing 

is driving perceptions about the prospect of default by AIG, as opposed to 

simply judging AIG’s financial strength. 

Figure 11: AIG Credit Default Swap Premiums, January 2007 through July 2009 

0

1,000

2,000

3,000

4,000

5,000

Jan. JuneMayApr.Mar.Feb. July Aug. Sept. MayApr.Mar.Feb.Jan.Dec.Nov.Oct. June July Aug.Sept. Nov.Oct. Apr.Mar.Feb.Jan.Dec. May JuneJuly Aug.Sept.

Basis points

Source: GAO analysis of Thomson Reuters Datastream.

3-year CDS

5-year CDS

2007 2008 2009

9.2

(1/2/07)

3,500

(9/16/08)

3,922

(9/16/08)

3,683

(5/4/09)

982

(9/8/09)

4,534

(5/4/09)

1,023

9/8/09)

Note: A basis point is a common measure used in quoting yield on bills, notes, and bonds and 

represents 1/100 of a percent of yield. CDS provide protection to the buyer of the CDS contract if the 

assets covered by the contract go into default. 

Indicators of the Health of 

AIG’s Domestic Insurance 

Companies 

AIG Insurance Subsidiaries: Regulatory Capital and Primary 

Activities Affecting Stockholders’ Equity. This indicator is intended to 

monitor the capital of AIG insurers for losses that could deplete capital 

and require additional capital contributions through federal assistance 

(see fig. 12). The National Association of Insurance Commissioners 

(NAIC) requires that insurance companies hold a minimum amount of 

capital as computed by a risk-based capital formula. According to NAIC, “a 

company reporting total adjusted capital of 200 percent or more of 

minimum risk-based capital (RBC) is a ‘no action’ level company; nothing 

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Repayment Indicators 

needs to be done by regulators.” On the other hand, NAIC states that 

“Total Adjusted Capital of < 70 percent triggers a Mandatory Contro

that requires the regulator to take steps to place the insurer under 

control.” Moreover, a company’s credit ratings are influenced by, among

other things, its ratio of Total Adjusted Capital to its control level RBC. 

Figure 12 shows that, as AIG stated, the property/casualty companie

life companies had adjusted capital of 400 percent and 600 percen

respectively of RBC at year end for both 2007 and 2008. Adverse 

movements in the primary components of capital and stockholders’ equity

may indicate weak performance by the companies, which could be offs

by capital contributions from the federal gov

respectively of RBC at year end for both 2007 and 2008. Adverse 

movements in the primary components of capital and stockholders’ equity

may indicate weak performance by the companies, which could be offs

by capital contributions from the federal gov

l Level 

s and 

t, 

et 

ernment lines of credit in 

order to maintain the desired capital ratios. 

al 

 federal assistance and losses were from 

securities lending activities. 

t, 

et 

ernment lines of credit in 

order to maintain the desired capital ratios. 

al 

 federal assistance and losses were from 

securities lending activities. 

However, figure 12 also shows without capital contributions, adjusted 

capital would not have been adequate to cover losses in 2008. The capit

contributions were part of the

Figure 12: AIG Insurance Subsidiaries: Regulatory Capital at December 31, 2007, 

and December 31, 2008, and Primary Activities That Affected Regulatory Capital 

During 2008 (dollars in millions) 

Source: Financial statements filed with the National Association of Insurance Commissioners.

AIG’s

largest

domestic

property/

casualty

companies

Primary activities affecting capital (2008)

Stockholder

dividendsb

Investor

capital

contributions

Unrealized

capital

lossesa

Net

income

12/31/08 12/31/07 12/31/08 or loss

Adusted capital Control level

risk-based capital

12/31/07

$3,083

-$3,019

$6,065 $5,966 $2,327

$24,092 $26,598

-$4,623

AIG’s

largest

domestic

life insurance/

retirement

services

companies

$23,116

-$24,214

$2,901 $2,474

-$17,602

$15,653

$20,040

-$52

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Repayment Indicators 

Notes: 

a

Includes dividends paid within AIG. 

b

NAIC financial statements show unrealized capital losses separately. 

AIG Life and Retirement Services: Additions to and Withdrawals 

from Policyholder Contract Deposits Including Annuities, 

Guaranteed Investment Contracts, and Life Products. This indicator 

is intended to monitor for potential redemption “runs” by AIG annuitants 

and policyholders (see fig. 13). Additions to policyholder contract deposits 

are amounts customers have paid to AIG to purchase a policy or contract. 

Withdrawals represent redemptions or cancellations of these instruments. 

Sharp increases in contract withdrawals and/or reductions in contract 

deposits could indicate sharply increased redemptions due to customer 

anxiety about AIG in particular or insurance companies more broadly. 

Sharp increases in redemptions could strain a company’s liquidity. 

As reflected in figure 13, in the fourth quarter of 2008 AIG life and 

retirement services saw a sharp decline in additions to policyholders’ 

contract deposits and a large spike in withdrawals resulting in a gap of 

over $26 billion. Without more granular data, we cannot determine 

whether the withdrawals were driven by concerns about the condition of 

AIG or by the overall economic downturn, which may have resulted in 

policyholders cashing in policies for economic reasons. The large disparity 

between the withdrawals and deposits adversely impacted the liquidity 

position of this segment of AIG. However, AIG rebounded in the first 

quarter of 2009 with a 77 percent reduction in the gap between additions 

and withdrawals to about $6 billion. In the second quarter of 2009, the 

disparity between additions to and withdrawals from deposits shrank even 

further to $2.9 billion, bringing the amounts closer to historical levels. 

However, withdrawals continue to outstrip deposits. 

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Repayment Indicators 

Figure 13: AIG Life and Retirement Services: Additions to and Withdrawals from Policyholder Contract Deposits Including 

Annuities, Guaranteed Investment Contracts, and Life Products, First Quarter of 2007 through Second Quarter of 2009 

Dollars in millions

0

5,000

10,000

15,000

20,000

25,000

30,000

Q1 Q2

2009

Q1 Q2 Q3 Q4

2008

Q1 Q2 Q3 Q4

2007

$14,001

$15,309$14,768 $14,070

$16,997

$14,195

$19,063

$15,101

$16,439 $15,600

$16,883

$12,326

$13,124

$14,455

$27,364

$6,988

$12,968

$10,546

$13,401

$850

Source: AIG SEC filings.

Additions to policyholder contract deposits

Withdrawals from policyholder contract deposits

AIG Life Insurance and Retirement Services: Key Quarterly 

Revenues and Expenses. This indicator is intended to monitor the 

profitability of AIG’s life insurance and retirement services companies as 

AIG arranges their disposition (see fig. 14). Operating income before 

capital gains or losses provides an indication of the profitability of the 

company’s underwriting operations, while capital gains and losses relate 

to investment activities not directly related to insurance underwriting. 

Increases in operating income or reductions in net realized capital losses 

could indicate improvements in the operations of AIG’s life and retirement 

services companies, including improvement in market conditions, lower 

other-than-temporary impairments, and dissipating effects of lower credit 

ratings and negative publicity related to the AIG brand since September 

2008. 

As shown previously in figure 7, a large portion of the losses incurred by 

AIG in the fourth quarter of 2008 came from the life insurance and 

retirement services segment. Figure 14 provides a closer look at the 

operating gains and losses sustained by the Life and Retirement segment 

of AIG. The core underwriting activity of the companies has remained 

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Repayment Indicators 

fairly constant since 2007, with only slight reductions in premiums and 

little change in claims and member benefits. The vast majority of the 

losses incurred by AIG in 2008 were the result of losses associated with its 

investment activity. For example, investment losses associated with AIG’s 

domestic life and retirement services business accounted for $11.9 billion 

of its $12.5 billion in operating losses (95 percent) in the fourth quarter of 

2008. Similarly, for its foreign companies, losses from AIG’s investment 

activity of almost $6.7 billion accounted for all of the fourth quarter 2008 

losses and totally wiped out operating income of $1.3 billion, resulting in a 

loss of almost $5.4 billion. In the second quarter of 2009, AIG’s life 

insurance subsidiaries achieved an operating income of over $1.8 billion. 

Figure 14: AIG Life Insurance and Retirement Services: Key Quarterly Revenues and Expenses, First Quarter of 2007 through 

Second Quarter of 2009 

-15,000

-12,000

-9,000

-6,000

-3,000

0

3,000

6,000

9,000

21 3 214 3 214 21 3 214 3 214 21 3 214 3 214 21 3 214 3 214 21 3 214 3 214 21 3 214 3 214 21 3 214 3 214 21 3 214 3 214 21 3 214 3 214 21 3 214 3 214 21 3 214 3 214 21 3 214 3 214

Quarters

(2007 - 2009)

Quarters

(2007 - 2009)

Dollars in millions

Premium income and

other considerations

Key components of operating income

Interest and 

dividend income

Operating income 

before net realized 

capital gains or losses

Net realized capital

losses or gains

Operating income

or loss

Policyholder benefits

and claims incurred

Source: AIG quarterly financial statements.

Domestic

Foreign

Quarter 4 - 2008

$1,282 $6,837

$-2,152 -$5,763

$2,057 $2,234 $189 $108 $457

$1,361

$268 $1,253

$1,616 $7,422

$-2,543 -$5,223

$2,110 $2,371

-$11,928 -$6,699 -$12,533 -$5,352

-$605 $1,347

AIG General Insurance: Premiums Written by Division. The purpose 

of this indicator is to monitor business retention and new business activity 

of AIG’s property/casualty businesses (see fig. 15). “Premiums written” is 

the dollar volume of business in a particular period. Multiple factors, 

including industry-wide factors such as softening or hardening markets, 

Page 80 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

can affect premiums written. Changes in premiums written can also 

provide some indication of the success of AIG’s efforts to retain and 

attract business, such as the formation of Chartis, Inc. and rebranding. 

According to the Fourth Quarter 2008 Survey of the Council of 

Independent Agents and Brokers, the approximately five-year continued 

decline in average premium rates for accounts of all sizes is leveling off, 

perhaps signaling the end of the current soft market. 

Through 2007, 2008 and the first quarter of 2009, premiums written by 

AIG’s property/casualty subsidiaries trended downward, which closely 

followed the general industry trend. AIG noted that in the fourth quarter of 

2008 and the first quarter of 2009 general insurance net premiums written 

were also adversely affected by negative AIG publicity. The current data 

are not clear as to whether this trend is leveling off. 

Figure 15: AIG General Insurance: Premiums Written by Division, First Quarter of 2007 through Second Quarter of 2009 

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Q1 Q2

2009

Q1 Q2 Q3 Q4

2008

Q1 Q2 Q3 Q4

2007

Dollars in millions

Source: AIG SEC filings.

Commercial

insurance

Foreign

general

Transatlantic

personal lines

Mortgage

guaranty

$5,971

$6,449

$5,986

$5,650

$5,124

$6,079

$5,630

$4,410

$2,678

$3,552

$4,184

$2,954

$4,968

$3,647

$3,726

$4,339

$2,921

$3,270

$3,242

$3,618

Note: AIG intends to buy United Guaranty Corporation, AIG’s mortgage guaranty operations, from the 

recently established AIU Holdings (Chartis, Inc.). Common shares of Transatlantic were sold during 

the second quarter of 2009, reducing the aggregate ownership interest in Transatlantic to 14 percent; 

the remaining shares are expected to be sold before the end of 2009. The personal lines companies 

were sold to a third party on July 1, 2009. Commercial Insurance will retain the Private Client 

business historically written by the personal lines segment. 

Page 81 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

AIG Property/Casualty Insurance: AIG Commercial Insurance 

Operating Ratios and AIG Foreign General Insurance Operating 

Ratios. The purpose of this indicator is to monitor operating performance 

of major domestic and foreign AIG property/casualty businesses (see fig. 

16). The indicator includes three ratios that provide information on an 

insurer’s operating profitability. Increased loss ratios indicate higher 

losses relative to premiums, due to either increased losses or decreased 

premiums. Expense ratios are a measure of underwriting efficiency, and 

increases represent increased expenses relative to premiums. For 

example, 

Loss ratio = claims + claims adjustment expenses incurred

 net earned premiums

A 77.3 loss ratio indicates that 77.3

cents out of every dollar in premiums 

earned are used to adjust and pay 

claims. 

Expense ratio = underwriting expenses

 net premiums earned 

A 22.4 expense ratio indicates that 

22.4 cents out of every dollar in 

premiums earned are used for 

underwriting expenses. 

Combined ratio = loss ratio + expense ratio A combined ratio of less/more than 

100 indicates underwriting 

profitability/loss. 

As shown in figure 16, AIG’s expense ratio for AIG commercial insurance 

spiked in the fourth quarter of 2008. This spike was largely due to an 

accounting charge associated with an impairment to goodwill resulting 

from the acquisitions.3

 The increased loss ratio for AIG commercial 

insurance can largely be attributed to increased claims associated with 

Hurricane Ike and other major catastrophes in 2008. The loss ratio and the 

combined ratio dropped back down to levels similar to the third quarter of 

2008. The combined ratio is still high at around 100. 

 

3

Goodwill is generally the value of a business that is not directly attributable to the fair 

value of the assets and liabilities of the business. If the fair value of the assets (present 

value of future cash flows) is less than the carrying value (booked value of assets plus 

goodwill less liabilities) then the impairment loss must be recognized on the income 

statement. In the case of AIG an increase in expenses was necessary to account for the 

impairment loss. 

Page 82 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

Figure 16: AIG Property/Casualty Insurance: AIG Commercial Insurance Operating Ratios and AIG Foreign General Insurance 

Operating Ratios, Second Quarter of 2007 through Second Quarter of 2009 

0

20

40

60

80

100

120

140

Q1 Q2

2009

Q1 Q2 Q3 Q4

2008

Q2 Q3 Q4

2007

AIG commercial insurance operating ratios AIG foreign general insurance operating ratios

Ratio Ratio

Source: AIG quarterly financial supplements.

Expense ratio

Combined ratio

Combined ratio

Loss ratio

Expense ratio

Loss ratio

0

20

40

60

80

100

120

140

Q1 Q2

2009

Q1 Q2 Q3 Q4

2008

Q2 Q3 Q4

2007

83.57 82.84

91.23

96.32 93.94

108.96

90.20

133.33

99.82

79.83

19.99

100.40

78.32

22.08

43.13

87.04

21.92

74.63

19.31

74.38

21.94

73.47

17.76

64.16

18.68

86.05 90.17 85.23 83.41

89.36

59.31

97.19 100.74

57.99

42.75 40.57

54.91

95.48

34.68

55.57

90.25

37.88

53.65

35.71

51.78

31.63

47.31

37.92

52.40

37.77

52.13

33.92

66.29

17.28

Note: The underwriting expense for the fourth quarter of 2008 includes a $1.2 billion charge for 

impairment to goodwill, increasing the expense ratio by 22.50 points. Claims related to major 

catastrophes were $1.4 billion in 2008, including hurricane claims of $1.1 billion in the third quarter of 

2008. Conversely, claims related to major catastrophes were $100 million in 2007. 

Indicators of the Status of 

the Government’s 

Exposure to AIG 

Composition of U.S. Government Efforts to Assist AIG and the 

Government’s Remaining Exposure. This indicator identifies the 

various components of federal assistance to AIG (see table 5). Included 

are (1) the assistance provided directly by the federal government, either 

as debt to the government or as government equity; (2) other federal 

efforts to assist AIG, including debt that the government has incurred or as 

government equity; and (3) remaining government exposures to AIG, 

whether financial or legal. The table also shows that while most of the 

$120.9 billion in assistance provided has been the $83.8 billion in direct 

assistance to AIG in the form of FRBNY’s Revolving Credit Facility and 

Treasury’s purchase of preferred shares and creation of the Equity 

Facility, the government has also provided about $37 billion in indirect 

assistance by creating and making loans to Maiden Lanes II and III for the 

purchase of mortgage-backed securities from AIG’s insurance subsidiaries 

and for the purchase of CDOs from AIG’s counterparties. 

Page 83 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

Also reflected in table 5 are plans to further modify the assistance 

provided to AIG. For example, on March 2, 2009, the Federal Reserve and 

AIG announced their intent to enter into a transaction in which FRBNY 

will purchase securitization notes in the amount of up to $8.5 billion issued 

by special purpose vehicles (SPV) that will be established by certain AIG 

domestic life insurance subsidiaries. The SPVs are to repay the notes from 

the net cash flows they received from the designated blocks of existing life 

insurance policies issued by the insurance companies. AIG is to use the 

proceeds of the FRBNY loan to pay down an equivalent amount of 

outstanding debt under the Revolving Credit Facility. In addition, on June 

25, 2009, the Federal Reserve and AIG entered into agreements under 

which AIG will transfer its preferred equity interest in two SPVs created by 

AIG to hold the common stock of two foreign life insurance subsidiaries, 

American International Assurance (AIA) and American Life Insurance 

Company (ALICO), to FRBNY, as previously discussed. When this 

transaction is completed, the amount outstanding and the maximum 

available to borrow on the facility is to be reduced by $25 billion.4

Table 5: Composition of U.S. Government Efforts to Assist AIG and the Government’s Remaining Exposure, as of September 

2, 2009 (dollars in millions) 

Direct AIG 

assistance Indirect AIG Assistance 

Amount 

authorized 

AIG debt owed to 

government

Government 

equity

Other debt owed 

to government 

Government 

equity Total

Federal Reserve 

Revolving 

Credit Facility 

$60,000 $38,792.5a$38,792.5a

Maiden Lane II $22,500 $16,899 $16,899

Maiden Lane III $30,000 $20,196 $20,196

Securitization 

Note 

[$8,500]b0 0

American 

International 

Assurance/ 

American Life 

Insurance 

Company 

[$25,000]b

 

4

The maximum amount available under the FRBNY facility will not be less than $25 billion 

as a result of a reduction from the AIA, ALICO, or securitization notes transactions. 

Page 84 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

 Direct AIG 

assistance Indirect AIG Assistance 

Amount 

authorized 

AIG debt owed to 

government

Government 

equity

Other debt owed 

to government 

Government 

equity Total

 Treasury

Series D/E $40,000 $41,605c$41,605c

Series F $29,835 $3,206d$3,206d

Total 

Total direct 

assistance $38,792.5 $44,811 $83,603.5

Total indirect 

assistance $37,095 $37,095

Total direct and 

indirect 

assistance to 

benefit AIG $182,335 $38,792.5 $44,811 $37,095 120,698.5

Source: AIG SEC filings, Federal Reserve Statistical Release H.4.1, and Treasury transactions reports. 

Note: When all transactions regarding the placement of AIA, ALICO, and domestic life insurance 

companies into SPVs are completed, they will again change the composition of the federal 

assistance. The debt owed by AIG-related entities will increase by $8.5 billion, government equity in 

AIG-related entities will increase by $25 billion, and debt owed by AIG will decrease by $33.5 billion. 

a

FRBNY reduced the amount of the commitment fee on the revolving credit facility by $500,000 to pay 

for the Series C stock.

b

These transactions are still pending and therefore, were not included in the total government equity 

exposure. 

c

When the Series E preferred shares were exchanged for Series D preferred shares, $1.605 billion of 

accrued but unpaid dividends was included in the liquidation preference the government received. 

d

$3.2 billion represents the amount that AIG has drawn on the authorized $29.8 billion facility. 

FRBNY Revolving Credit Facility Balance Owed and Total Amount 

Available. This indicator is intended to monitor AIG’s outstanding 

balance owed to the Revolving Credit Facility established by the FRBNY 

(see fig. 17). Outstanding loans are the weekly balance of credit extended 

to AIG under the Revolving Credit Facility, as reported by the FRBNY. 

Amounts reported include loan principal, all capitalized interest and fees, 

and the amortized portion of the initial commitment fee. AIG is able to 

borrow up to $60 billion from this facility, excluding interest and fees. 

As shown in figure 17, in November 2008 the outstanding balance on the 

credit facility was reduced when the proceeds from the issuance of Series 

D preferred stock to Treasury were used to pay down the balance owed 

and the ceiling on the credit facility was reduced from $85 billion to $60 

Page 85 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

billion. Since December 2008 the outstanding balance on the facility has 

remained fairly steady at around $40 billion. Changes in amounts owed on 

the facility fluctuate weekly and could indicate increased liquidity needs 

related to restructuring decisions. Lower balances could indicate 

decreased liquidity needs and payments to the facility including payments 

in the form of preferred equity stakes in AIG assets. 

Figure 17: FRBNY Revolving Credit Facility Balance Owed and Total Amount Available, October 2008 through September 

2009 

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Jan. Feb. Mar. Apr. May June July Aug. Sept.

2009

Oct. Nov. Dec.

2008

Dollars in millions

Source: Federal Reserve Statistical Release H.4.1 and Federal Reserve.

Balance

Total amount available

$72,332

10/22/08

$38,792

9/2/09

Principal Owed and Portfolio Values of Maiden Lane Facilities. The 

purpose of this indicator is to monitor Maiden Lane II and Maiden III 

repayment of FRBNY loans to purchase AIG and the counterparty assets 

and the portfolio values of these assets (see fig. 18). FRBNY extended 

credit to each Maiden Lane facility, which then purchased assets from AIG 

domestic life insurance companies and, in the case of Maiden Lane II, its 

counterparties. The Maiden Lane II LLC portfolio includes residential 

mortgage-backed securities and the Maiden Lane III LLC portfolio includes 

multi-sector collateralized debt obligations. The FRBNY loans are to be 

repaid from the maturity or liquidation of assets from each facility. 

Payments from the net portfolio holdings of these facilities are to be made 

in the following order: operating expenses of the LLC, principal due to 

FRBNY, interest due to FRBNY, principal due to AIG and interest due to 

AIG. Any remaining funds are to be shared by FRBNY and AIG. AIG made 

Page 86 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

investments of $1 billion to Maiden Lane II and $5 billion to Maiden Lane 

III. 

As shown in figure 18, the principal balance of the loans to Maiden Lanes 

and the value of their portfolios peaked in December 2008 and have 

subsequently trended downward.5

 The Federal Reserve said that it plans to 

hold on to the Maiden Lane assets until they mature or increase in value to 

a point where the Federal Reserve can maximize the amount of money 

recovered through a sale of assets. While the portfolio value has declined 

slightly, the Federal Reserve continues to believe that the assets held in 

the Maiden Lanes will appreciate over time. 

assets held in 

Figure 18: Principal Owed and Portfolio Values of Maiden Lane Facilities 

Dollars in billions

Maiden Lane II LLC Maiden Lane III LLC

0

5

10

15

20

25

30

Dollars in billions

0

5

10

15

20

25

30

12/17/08 12/24/08 3/25/09 7/1/09 9/2/09 12/17/08 12/24/08 3/25/09 7/1/09 9/2/09

Source: Federal Reserve System Monthly Report on Credit and Liquidity Programs and the Balance Sheet, June 2009.

Principal and interest owed to FRBNY

Portfolio value 

Principal and interest owed to AIG

$19.5 $20.0

$1.0 $1.0 $1.0 $1.0 $1.0

$19.5 $20.0

$18.6 $18.4

$17.1 $16.1

$17.7

$14.9 $15.2

$19.7

$5.0 $5.0 $5.1 $5.1 $5.1

$24.4

$28.2

$24.2

$27.6

$22.6

$20.5 $20.9 $20.2

 

5

The portfolio value is based on the market value of the underlying assets and will mirror 

the change in value of those assets. 

Page 87 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

AIG Business Unit Divestitures by Quarter. The purpose of this 

indicator is to monitor sales of AIG entities and net cash proceeds from 

these sales (see fig. 19 and table 6). Total sales amount includes amount 

applied to repay AIG intercompany loan facilities. Estimated net cash 

proceeds is the amount available to apply to the Revolving Credit Facility 

balance. Asset sales are listed according to the quarter in which the 

transaction closed. Sales in 2009 have far surpassed those closed in 2008. 

Figure 19: Proceeds from Dispositions by Quarter, Second Quarter of 2008 through 

September 5, 2009 

0

1,000

2,000

3,000

4,000

5,000

9/30/08 12/31/08 3/31/09 6/30/09 9/5/09

Dollars in millions

Source: AIG SEC filings.

$820

$76

$1,900

$43

$41

$1,737

$550

$800

$2,441

$200

Proceeds with cash portion not disclosed

Cash proceeds

Noncash proceeds

Page 88 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

Table 6: Dispositions Closed and Agreements Announced but not yet Closed, 

Second Quarter of 2008 through September 5, 2009 (dollars in millions) 

Dispositions closed in quarter ending Total Proceeds 

September 30, 2008 

not applicable not applicable 

December 31, 2008 

Unibanco JV $820 

Taiwan Finance N/D 

March 31, 2009 

AIGFP Energy Commodity Hedges (all cash) 61 

Philam Savings Bank 43

HSB ($739 million cash) 815 

June 30, 2009 

AIG Life Insurance Company of Canada (all cash) 263

Commodity Business (all cash) 15 

AIG Retail Bank and AIG Card (Thailand) ($45 million cash) 540 

AIG Private Bank ($250 million cash) 305 

Darag 26 

Real estate in Tokyo (all cash) 1,179 

September 5, 2009 

21st Century Insurance Group ($1,700 million cash) $1,900 

CFG China N/D 

Consumer finance operations in Mexico N/D 

A.I. Credit Life (all cash) 741 

Investment assets—energy & infrastructure 1,900 

Total proceeds on dispositions closed $8,608 

Total cash proceeds on closed dispositions with terms 

disclosed 

$4,993 

Page 89 GAO-09-975 Troubled Asset Relief Program
Appendix V: Overview of the AIG Risk and 

Repayment Indicators 

Dispositions closed in quarter ending Total Proceeds 

Disposition agreements announced but not yet closed 

AIG Finance- Hong Kong 627 

Consumer finance operations in Russia 9 

AIG Credit Card Co (Taiwan) 117 

Consumer finance operations in Argentina 69 

Consumer finance operations in Colombia N/D 

CFG Thailand: CFGS N/D 

UGC-Campus Partners N/D 

Consumer finance business in Poland N/D 

Portion of investment management advisory business 500 

Transatlantic Holdings 1,096 

Source: AIG. 

Note: N/D means not disclosed 

Page 90 GAO-09-975 Troubled Asset Relief Program
Appendix VI: 

A

GAO Contact and Staff 

cknowledgments 

Page 91 GAO-09-975 

Appendix VI: GAO Contact and Staff 

Acknowledgments 

Orice Williams Brown, (202) 512-8678 or williamso@gao.gov

In addition to the contact named above, Karen Tremba and Patrick Ward 

(Assistant Directors); Silvia Arbelaez-Ellis, Tania Calhoun, Rachel 

DeMarcus, John Forrester, Dana Hopings, Matthew McDonald, Marc 

Molino, Barbara Roesmann, Christopher Ross, Jennifer Schwartz, Ellery C. 

Scott, Cynthia S. Taylor, and Melvin Thomas made important 

contributions to this report. 

GAO Contact 

Staff 

Acknowledgments 

Troubled Asset Relief Program 
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Accountable. GAO-09-837. Washington, D.C.: July 23, 2009. 

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for October 28, 2008, through May 29, 2009, and Information on 

Financial Agency Agreements, Contracts, Blanket Purchase Agreements, 

and Interagency Agreements Awarded as of June 1, 2009. GAO-09-707SP, 

an e-supplement to GAO-09-837. Washington, D.C.: June 17, 2009. 

Troubled Asset Relief Program: June 2009 Status of Efforts to Address 

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Page 92 GAO-09-975 Troubled Asset Relief Program
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Washington, D.C.: December 10, 2008. 

Auto Industry: A Framework for Considering Federal Financial 

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Auto Industry: A Framework for Considering Federal Financial 

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Troubled Asset Relief Program: Status of Efforts to Address Defaults and 

Foreclosures on Home Mortgages. GAO-09-231T. Washington, D.C.: 

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Troubled Asset Relief Program: Additional Actions Needed to Better 

Ensure Integrity, Accountability, and Transparency. GAO-09-161. 

Washington, D.C.: December 2, 2008. 

(250485) Page 93 GAO-09-975 Troubled Asset Relief Program
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