AIG最終PPT教學(xué)課件

1、Outline AIG and its CDS business How AIG collapsed Why the government bailout? Risk exposure in this case Analysis of CDSs Regulation of CDSs Conclusion第1頁/共18頁What is AIG? American International Group, Inc. (1919) The largest insurance company in the United States. Four main business units: General

2、 InsuranceLife Insurance and RetirementFinancial ServicesAsset ManagementCDS Transactions第2頁/共18頁Credit Default Swap (CDS)A CDS is a derivative that is an insurance contract on a bond.To address counterparty credit risk, a CDS may require the protection seller to post collateral with the protection

3、buyer equal to a specified percentage of the notional amount of the CDS.The seller would be required to post additional collateral as a rising spread indicates a perceived increase in the probability of a credit event occurring.The CDS will provide for an automatic increase in the collateral percent

4、age for any downgrades to the protection sellers credit rating. Protection SellerProtection BuyerCompensate if a credit event occursPay a fee if no credit event occursPost collateral “CDS spread or premium”第3頁/共18頁AIG Business Credit Default Swaps (CDSs)- AIG characterized writing CDSs as “free mone

5、y”, because they indicated that the underlying securities would never go into default.- AIG would make more collateral payments if the value of the insured assets declines or the corporate credit-ratings downgrades.Notional value of CDSsCorporate Loans$230 billionPrime Residential Mortgages$149 bill

6、ionCollateralized Loan Obligations CLOs$70 billionMulti-sector CDOs$78 billionTOTAL$527 billionWritten to provide various European financial institutions “regulatory capital relief”.Consist of tranches of asset-backed securities from multiple sectors, including subprime loans.第4頁/共18頁AIGs Collapse T

7、he credit market and house market fell in 2008 Billions of collateral posting obligations, inability to access the capital market, the credit rating agencies downgraded its debt rating in Sep 2008, which triggered additional posting obligation. The liquidity strains against the CDSs was amplified by

8、 liquidity strains arising from AIGs securities lending program. Losses on AIGs CDS contracts were $28.6 billion. On September 16, 2008, the Federal Reserve loaned AIG $85 billion to bail it out in exchange of 79.9% of its equity.Downgrades of credit ratingsSevere deterioration of the mortgage-relat

9、ed securities underlying CDSsAIG had to pay ever-increasing amounts of collateral to its counterparties.($33.9 billion)第5頁/共18頁Why the bailout? The consequences of Lehman Brothers bankruptcy Chain reaction and would lead to the collapse of the entire financial system. A bankrupt AIG could not pay of

10、f on those CDS contracts Losses in the form of write-downs on CDS portfolios Paralyze the credit markets第6頁/共18頁Risk Exposure - ”O(jiān)ne-way” bet on CDSs. Most market-making financial firms typically both buy and sell CDSs to hedge any significant directional exposure, however, AIG only sold CDSs, it di

11、dnt have any offsetting positions that would make money if its swaps in this sector lost money.- Intrinsic risk in CDSs. There is high correlation between default triggering events. Once some bonds start defaulting, other bonds are more likely to default. The risk increases exponentially.- Fail to a

12、ssess the risk of MBS, CDOs and other mortgage market exposure. AIG relied excessively on a credit risk model that did not adequately account for both the sharp decline in the mortgage market and a downgrade of AIGs credit rating.第7頁/共18頁CDS: Credit Default SwapCDS market was too bigLack of regulati

13、onNo transparencyDifferent from insuranceRisk1. Speculation: buy a CDS at a spread of 300 basis points, and sell the same CDS at a spread of 600 basis points in the next year.2. Hedge: manage the risk of default which arises from holding debt3. Arbitrage: rely on the negative relationship between a

14、companys stock price and its CDS spreadCrisisSystemic riskDomino effectUseFinancial swap agreementBoth buyer and seller take riskt1 t2 t3 t4 t5 t6 t7 Credit eventbuyerseller- Equal payout to all holders - Do not require to maintain reserve to cover the assets - Do not require buyers to disclose know

15、n risksOver-the-counter derivative: liquidity risk- buyers: take the risk of sellers default- sellers: take the risk of buyers defaultJump-to-default risk- One default will create a sudden huge obligation on sellers- Contracts negotiated privatelyLehman Brothers and AIG owns a huge number of CDSs wh

16、ich is a risk of whole marketA defaults leads to B defaults, making C bankrupt while C knowing nothing about A第8頁/共18頁The (lack of) regulation of Credit Default Swaps Regulatory Gap Regulatory reform 第9頁/共18頁Regulatory Gap CDSs are expressly excluded from each of these regulatory schemes Until Decem

17、ber 2000, the prevailing opinion was that CDSs were securities under the Securities Act 第10頁/共18頁Regulatory Gap While CDSs themselves are not regulated, many of the players in the CDS market are. Since 1999, AIG has been subject to Office of Thrift Supervision (OTS) regulation, examination, supervis

18、ion, and reporting requirements.第11頁/共18頁Regulatory reformThe Obama Administrations proposal第12頁/共18頁CRISISCDSCDOREGULATIONRISK MANAGEMENT19192008GOVERNMENT BAILOUT80%第13頁/共18頁ReferenceSjostrom WK, Jr. 2009. “The AIG bailout”. Washington and Lee Law Review. 66(3):943.McDonald R, Paulson A. 2015. “AI

19、G in Hindsight”. The Journal of Economic Perspectives. 29(2):81-105.Pierce, Hester. 2014. “Securities lending and the untold story in the Collapse of AIG.” George Mason University, Mercatus Centre Working Paper No. 14-12.Ellul, A., Jotikasthira, C.T. and Wang, Y. 2014. “Market to-market accounting a

20、nd systematic risk: evidence from the insurance industry.” Economic Policy. 29. P297-341.Davidson, Adam. 2008. “How AIG fell apart?” Reuters Online.International Swaps and Derivatives Association, Inc. (ISDA). 24. Product description: Credit default swaps. Retrieved March 26, 2010. ISDA is the trade

21、 group that represents participants in the privately negotiated derivatives industryWeistroffer, Christian; Deutsche Bank Research (December 21, 2009). Credit default swaps: Heading towards a more stable system. Deutsche Bank Research: Current Issues. Retrieved April 15, 2010.第14頁/共18頁第15頁/共18頁AIG Credit RatingsAIG Credit RatingsRating Firm