Documents Reveal AIG Hid Risk Warning from Auditors
According to documents obtained by a congressional panel examining Tuesday the chain of events that forced the government to bail out the conglomerate, executives at the American International Group Inc. (AIG) hid from its auditors the full range of risky practices at its financial products division even as losses mounted.
As losses from risky financial products mounted in March, the Office of Thrift Supervision warned that “corporate oversight of AIG Financial Products ... lack critical elements of independence, and granularity.”
At the same time, AIG’s auditor, Pricewaterhouse Cooper confidentially warned the firm that the “root cause” of AIG’s problems was that internal overseers in charge of limiting AIG’s exposure were denied adequate access to the activities of the highly leveraged financial products branch.
Problems at AIG did not come from its traditional insurance subsidiaries, but instead from its financial services operations, primarily its insurance of mortgage-backed securities and other risky debt against default. Government officials feared a panic might occur if AIG couldn’t make good on its promise to cover losses on the securities; investors feared the consequences would pose a threat to the U.S. financial system, which led to the government bailout.
House Oversight Committee Chairman Henry Waxman, D-Calif., also said that even as losses were engulfing the company, AIG executives depleted AIG’s capital through stock buybacks and higher dividends.
The hearing is the second in two days into financial excesses and regulatory mistakes that have spooked stock and credit markets and heightened fears about a global recession.
Published on October 7, 2008
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