Goldman Sachs had up to $20 bln AIG risk-NY Times

NEW YORK, Sept 28 Sun Sep 28, 2008 12:08pm EDT

NEW YORK, Sept 28 (Reuters) - Goldman Sachs Group Inc (GS.N) had as much as $20 billion at risk had the insurer American International Group Inc (AIG.N) collapsed, the New York Times said on Sunday.

Goldman was AIG's largest trading partner, the newspaper said, citing six people close to the insurer. A collapse of AIG threatened to leave a hole of as much as $20 billion in Goldman, the newspaper said, citing several of the people.

The Wall Street bank told the newspaper that it was never imperiled by AIG's troubles. Spokesman Lucas van Praag also disputed the $20 billion figure, saying it did not account for collateral and hedges that Goldman employed to reduce risk.

The AIG bailout came after the New York-based insurer saw losses spiral on credit default swaps, which are insurance contracts whose value is tied to underlying securities such as mortgages and corporate debt.

A failure of AIG might have had cascading effects throughout the global financial system because of the many companies that do business with it. AIG was once the world's largest insurer by market value.

As part of the bailout, the government directed AIG to sell assets to help pay off what it borrows.

David Viniar, Goldman's chief financial officer, told analysts on Sept. 16, hours before the bailout was announced, that Goldman's exposure to AIG was immaterial.

On Sept. 21, Goldman said it converted to a bank holding company, which should reduce risk and potential profitability.

In a full-page advertisement in the Times on Sunday, new AIG Chief Executive Edward Liddy tried to reassure customers that the company would keep operating as normally as possible.

"Our insurance companies remain strong and well capitalized," he said. "The financial issues of the AIG parent company do not affect our insurance companies' ability to pay claims and underwrite new policies. Regulations ensure that the assets of our insurance companies are there to back up each policy. You are protected. Your policies are safe." (Reporting by Jonathan Stempel, editing by Maureen Bavdek)

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