Category Archives: insurance

MBIA’s New Structure

It’s taken rather longer than anybody exepected, but MBIA has finally put in place its long-promised plan to split up the company into its component parts, with the relatively strong public finance insurer getting a new name — National Public … Continue reading

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Why We Need Federal Insurance Regulation Now

Rolfe Winkler has a great post on Allstate’s finances today, which underscores two things: the urgency of massive regulatory overhaul in the financial sector, and the necessity of including insurance companies under the unified financial-services regulatory umbrella. Unless and until … Continue reading

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Frenkel Scuttles Away From AIG

In AIG’s last annual report, there’s a list of 31 "directors and executive officers of AIG" (it’s page 69 of the PDF, page 15 of the 10-K). On the list is vice-chairman Jacob Frenkel: we are told that he has … Continue reading

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AIG’s Speculative CDS Bets

Did you know that AIG has a Blog Relations department? For real. They sent out a big email earlier today, which wound up in places as varied as Dealbreaker and Welt Online, taking issue with the WSJ’s story about them … Continue reading

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Morning IM

Over at Clusterstock, I’m discussing the stories of the morning with Joe Wiesenthal and John Carney. So far the main topics of discussion are AIG (yes, it wants another bailout) and the idea that Treasury might start issuing 100-year bonds. … Continue reading

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Greenberg’s Chutzpah

Hank Greenberg didn’t like AIG Bailout I, nor AIG Bailout II. So he’s pushing for AIG Bailout III, which will be even nicer to AIG’s shareholders, such as Hank Greenberg. More needs to be done to save AIG. A new … Continue reading

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Berkshire’s Puts: Not Such a Great Idea

Andrew Clavell delves into the murky world of Berkshire Hathaway’s equity put contracts, and concludes: The put owner has been forced into purchasing a lot more credit cover in a nasty cross gamma effect. No wonder BRK’s credit spreads have … Continue reading

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Berkshire’s CDS and Counterparty Hedging

In Barron’s this weekend, Andrew Bary brought up the subject of Berkshire’s credit default swaps, and why they’re trading at such a wide level: The Street talk is that Berkshire’s counterparties, believed to include Goldman, are worried about their Berkshire … Continue reading

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Berkshire Hathaway’s Peculiar Volatility Numbers

I just got off the phone with someone who’s been making good money shorting Berkshire Hathaway stock in the past few weeks; he pointed out to me something very peculiar in Berkshire’s public statements. First, look at the 10-Q for … Continue reading

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What’s Happening to Berkshire Hathaway?

Jonathan Stempel of Reuters has a very useful look at what’s going on at Berkshire Hathaway, which fell $6,500 per share today to close at its lowest level in over five years. After reading his article, I think we might … Continue reading

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Will Berkshire Lose its Triple-A?

On the face of it, recent activity in Berkshire Hathaway makes little sense. Credit default swaps on the triple-A company were trading at 388bp yesterday, and are somewhere over 450bp today, possibly having risen as far as 560bp this morning. … Continue reading

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Why AIG was in the CDS Business

Gari has a question about AIG, in the comments: Why did a well-capitalised insurance company with plenty of long-dated liabilities decide that it was a better use of shareholders’ and policyholders’ cash to write protection against debt instruments rather than … Continue reading

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Couldn’t the New AIG Bailout Have Waited Until January?

Last night I asked why AIG was getting a second bailout. I think the answer came this morning: AIG lost $24.5 billion in the third quarter. Under the terms of the first bailout, AIG could effectively borrow that $24.5 billion … Continue reading

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AIG Bailout 2: Why?

The WSJ has details of AIG Bailout II: Under the terms being finalized on Sunday night, the government would replace its original $85 billion loan with a two-year duration with a $60 billion loan with a five-year duration. Interest on … Continue reading

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Why Would Treasury Cut AIG’s Interest Payments?

The WSJ’s latest AIG story has set off Joe Wiesenthal’s bullshit detector — and mine, too. It’s headlined "U.S. Weighs Options to Ease Strain on AIG", and it seems to be an attempt to jawbone Treasury into reducing the punitive … Continue reading

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How AIG Failed

The WSJ shines a bit more light on what went wrong at AIG today, with a story centering on the chap who designed its risk models, Gary Gorton. In a nutshell, anybody writing credit protection runs two risks: the default … Continue reading

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Economic and Financial Bad News

If you’re one of those people who needs a negative GDP number to convince yourself that we’re in a recession, here you go. But the headline -0.3% figure isn’t the worst bit: that would be the 8.7% fall in disposable … Continue reading

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Bailout Datapoint of the Day, AIG Edition

Remember the $85 billion loan that the US government extended to AIG? It turns out the insurer really needed that much money after all: The firm tapped about $61 billion of the federal credit line after saying Sept. 16 it … Continue reading

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Goldman Sachs and the Regulatory Arbitrage Trade

Sam Jones has a great piece this morning on regulatory arbitrage under Basel II — which turns out to have been one of the big business lines of the doomed AIG Financial Products. Banks have to have a certain amount … Continue reading

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Even the Shorts are Losing Now

How on earth did David Einhorn’s Greenlight Re contrive to lose 11.5% on its investment portfolio in September, the month that Lehman Brothers went bust? Einhorn has famously been short Lehman for many months, and the short-selling ban didn’t apply … Continue reading

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Did Buffett Kill the Wells Fargo-Wachovia Deal?

Why did the Wells Fargo deal to buy Wachovia fall through at the last minute? The WSJ reports that Wells Fargo CEO chairman Dick Kovacevich blamed perceived weaknesses in a surprising area of Wachovia’s loan portfolio: Wachovia’s advisers were surprised … Continue reading

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Remuneration Datapoint of the Day

From Gretchen Morgenson’s article on AIG Financial Products, the 377-person unit which brought down a 116,000-employee behemoth: Over all, A.I.G. Financial Products paid its employees $3.56 billion during the last seven years.

Posted in derivatives, insurance, pay | 1 Comment

The $85 Billion Check

Ottorock asks a question: When a gov’t cuts an $85Bn cheque, where do the funds come from? John Jansen hazards a guess at the answer: If the Federal Reserve Bank of New York plans to write an $85 billion check … Continue reading

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Libor + 850bp

It’s done. The US government is bailing out AIG to the tune of $85 billion. But boy is it an expensive loan: Interest will accrue on the outstanding balance at the three-month London interbank offered rate plus 8.5 percentage points. … Continue reading

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Why Bail Out AIG’s Bondholders?

Much as the prospect of an AIG bankrupcy terrifies me, I’m not a fan of an $85 billion government bailout either. Bond investors have already taken enormous mark-to-market losses on their AIG paper; if they realized just a fraction of … Continue reading

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