All the Devils Are Here [204]
September 13: Goldman buys an additional $700 million worth of protection on AIG, bringing the total to $1.5 billion.
September 20: Goldman announces its third-quarter results: profits of $2.9 billion, despite marking down its own subprime holdings. “Significant losses on nonprime loans and securities were more than offset by gains on short mortgage positions,” says the firm.
October 1: AIG-FP accountant Joseph St. Denis, who had joined FP in June 2006, resigns. In a letter he would later write to congressional investigators, St. Denis says he became “gravely concerned” when he learned in September of the Goldman collateral calls—“as the mantra at AIG-FP had always been (in my experience) that there could never be losses” on the super-seniors. Cassano, he says, deliberately excluded him from meetings to discuss the valuation issue because, Cassano told him, “I was concerned that you would pollute the process.” On the morning he resigns, St. Denis tells AIG-FP’s general counsel that “I have lost faith in the senior-most management of
AIG-FP.”
November 2: Goldman ups its collateral demands to $2.8 billion. Yet again, AIG-FP disputes Goldman’s marks.
November 7: AIG announces its third-quarter results: $3 billion in profits. But it also discloses that it has taken a $352 million write-down on “unrealized market valuation loss” in the quarter, which ended in September. It adds that, in October, its portfolio took on an additional $550 million in losses, which could get better or worse, depending on what happens in the rest of the fourth quarter. During the ensuing conference call, the only thing the analysts want to talk about is AIG’s super-senior exposure.
November 8: Goldman’s David Lehman e-mails Forster: “We believe the next step should include a line by line comparison of GS vs. AIG-FP prices.... Can we set aside 30 minutes to discuss live today or tomorrow?”
November 16: Société Générale demands $1.7 billion on a portfolio of $13.6 billion. Merrill Lynch demands $610 million on a portfolio of $7.8 billion. “Their average price is 84.20 [cents on the dollar],” Forster tells Cassano in an e-mail. Goldman’s prices are much lower—in the high sixties.
November 18: Goldman ups its credit default swap protection on AIG to $1.9 billion.
November 23: AIG posts $1.5 billion in collateral, bringing its total to nearly $2 billion. Goldman’s demands rise to $3 billion.
November 27: Cassano sends an e-mail to Bill Dooley at headquarters laying out, seemingly for the first time, all of AIG-FP’s counterparty exposures as well as the collateral calls that have come in so far. It is a sobering document. Merrill Lynch has bought protection on $9.92 billion worth of triple-A tranches from FP and is demanding $610 million. Bank of Montreal wants $41 million on its $1.6 billion portfolio. Calyon, the investment banking division of the French bank Crédit Agricole, is demanding $345 million on its $4.5 billion portfolio. UBS has a $6.3 billion portfolio; it wants $40 million from AIG. A half dozen other big banks have billions of dollars worth of super-seniors insured by AIG and haven’t yet made a collateral call—but obviously they could any day. And of course there’s Goldman Sachs, which has a total of $23 billion in super-senior exposure insured by AIG-FP. It is demanding not millions like everyone else, but billions.
November 29: Eight thirty a.m. A week after Thanksgiving and four months after Goldman’s first collateral call, AIG’s top executives—among them Sullivan, Lewis, Dooley, and Steve Bensinger, the company’s chief financial officer—finally meet to talk, via a conference call, about the mounting problem. Cassano, Forster, and a third AIG-FP executive join them on the phone. Three auditors from PricewaterhouseCoopers, including Tim Ryan, the lead auditor of the AIG account, also participate in the meeting. Someone takes notes, which are later obtained by the investigators.