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Funds News

NY Fed sought to limit AIG disclosures-lawmaker

WASHINGTON, Jan 7 (Reuters) - The Federal Reserve Bank of New York in late 2008 urged American International Group Inc to limit disclosures about the insurer’s full payments to major banks after its bailout, according to email traffic distributed by a U.S. congressman on Thursday.

The email exchanges, begun when Timothy Geithner, now U.S. Treasury Secretary, headed the New York Fed, showed that AIG initially proposed disclosing in early December 2008 that it would pay counterparties such as Goldman Sachs and Societe Generale 100 cents on the dollar to liquidate credit default swaps it sold them.

But references to the counterparty payment rate and other information were deleted from a proposed Securities and Exchange Commission filing that was “marked up” by attorneys working for the New York Fed, the emails showed.

When the filing, disclosing a deal for the New York Fed’s Maiden Lane III fund to take on an additional $16 billion of AIG obligations, was made on Dec. 24, 2008, it made no reference to the counterparty payment amounts.

The emails were distributed by U.S. Rep. Darrell Issa of California, the top Republican on the U.S. House of Representatives Oversight and Government Reform Committee. He is among many lawmakers who have been critical of Geithner’s handling of the $180 billion AIG bailout.

“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information to the SEC,” Issa said in a statement. “The American taxpayers, who own approximately 80 percent of AIG, deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.”

The extent of AIG's full payment to counterparties was not disclosed until March 2009, when AIG said it paid $22.1 billion to banks to pay off credit default swaps at par value. These included payments of $4.1 billion to Societe Generale SOGN.PA, $2.6 billion to Deutsche Bank DBKGn.DE and $2.5 billion to Goldman Sachs Group Inc GS.N.

Critics slammed the decision to make the banks whole as a stealth bailout of the institutions and have chided the New York Fed under Geithner for not negotiating hard enough for concessions from the banks. All but one bank refused to offer any discount on their holdings.

Geithner, who was nominated for Treasury Secretary in November 2008, has said there was little leverage to negotiate and that failure to pay the obligations in full could have had disastrous consequences for a financial system reeling from crisis.

SEC REQUESTS COUNTERPARTY DETAILS

The email traffic, which Issa requested from AIG in October 2009, shows that attorneys for the New York Fed requested delays in AIG disclosures to the SEC and sought to delete references to “synthetic” collaterized debt obligations and the list of payments to counterparties.

“We believe that the agreements listed in the index (i.e., the Master Investment and Credit Agreement and the Shortfall Agreement) do not need to be filed,” wrote Peter Bazos, a Davis Polk & Wardwell lawyer representing the New York Fed wrote on Nov. 25, 2008, to AIG attorneys. “Please let us know your thoughts in this regard.”

Six days after the Dec. 24 filing, the SEC in a private letter to then-AIG Chief Executive Edward Liddy said that AIG should disclose listings of collateral postings for the swaps and name the bank counterparties that were paid, The information was eventually disclosed in March 2009.

The New York Fed has maintained that some decisions were taken on AIG disclosures to protect the value of Maiden Lane III assets for U.S. taxpayers.

“Our position has always been that if AIG’s securities lawyers determine that AIG is legally obligated to make a particular filing or disclosure, then that is what AIG must do,” Thomas Baxter, the New York Fed’s general counsel, said in a statement. “It was appropriate as a party to the Maiden Lane III transactions for the New York Fed to provide comments on a number of issues, including disclosures, with the understanding that the final decision rested with AIG’s securities counsel.” (Reporting by David Lawder; Editing by Padraic Cassidy)

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