Foreign banks profit on AIG’s bailout
This is one downside of the massive AIG bailouts:
Banks in the U.S. and abroad are among the biggest winners in the federal government’s revamped $150 billion bailout of American International Group Inc.
Many banks that previously bought protection from the insurer on securities backed by now-troubled mortgage assets stand to recoup the bulk of their investments under a plan by AIG and the Federal Reserve Bank of New York to buy around $70 billion of those securities via a new company. These securities are collateralized debt obligations backed by subprime-mortgage bonds, commercial-mortgage loans and other assets.
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The banks that have sought and received collateral from AIG include Goldman Sachs Group Inc., Merrill Lynch & Co., UBS AG, Deutsche Bank AG and others.
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Under the plan announced Monday, the banks will get to keep the collateral they received from AIG, much of which came when the government made funds available to AIG in September.
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“It’s like a home run for some of the banks,” says Carlos Mendez, a senior managing director at ICP Capital, a fixed-income investment firm in New York. “They bought insurance from a company that ran into trouble and still managed to get all, or most, of their money back.”
