Alchemy chief told MPs that AIG maths didn't add up

17 September 2008 0:42 am

Moulton said AIG displayed some "remarkable pieces of arithmetic" in its financial results released just before the session in May.

AIG has a credit default swap portfolio called Super Senior of $475bn but it lost $21bn of this portfolio. Moulton said that AIG's response to that loss was to raise its dividend and introduce an improved pay structure for the staff in the unit which lost the $21bn.

Moulton criticised both this response and the model that AIG uses to value its credit default swaps, saying that this $21bn could be valued at anything between $2bn and $40bn. AIG itself is only worth $80bn, yet $192bn of its CDS portfolio is used to replace regulatory capital in banks which Moulton said illustrated that we are living in "fairyland".

Moulton said: "A remarkable financial feat seems to have occurred here where $80bn is guaranteeing $192bn of bank capital. I do not know how that works."

Richard Jacobs Pension and Trustee Services managing director Richard Jacobs says: "Since May, I have not been recommending AIG structured products or its other products because I am nervous after reading this evidence session. I cannot see why anybody should be locking their money away when the financial strength of the institutions backing these products is not known."

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