AIG and Goldman Execs Defend Risky Trades Leading to Meltdown

Executives from American International Group Inc. and Goldman Sachs are testifying today in a two-day FCIC hearing, focusing on the role of derivatives during the financial crisis.

(June 30, 2010) — While rebuffing accusations of relaxing standards, Joseph Cassano, who ran American International Group Inc.’s financial products unit between 2002 and 2008, said today that his division more than tripled the amount of risky investments it insured during the three years before the financial meltdown, the AP reported.

The FCIC’s inquiry panel chairman, Phil Angelides, reportedly questioned how AIG, the world’s largest insurer, was able to raise its issued swaps from $17 billion in 2005 to $78 billion in 2007 without compromising its standards.

Beginning today, Goldman Sachs and AIG executives, who have dodged public comment over the last two years, are testifying during a two-day Federal Crisis Inquiry Commission (FCIC) hearing. Along with Cassano, Goldman Sachs’ Chief Financial Officer David Viniar and other executives have been called to testify to review the role of derivatives. The panel is also investigating the relationship between AIG and Goldman, two companies that made some of the riskiest derivative trades before the crisis.

Since being subpoenaed, Goldman Sachs has become increasingly responsive to information requests from the FCIC, according to Bloomberg. The investment bank has additionally made its CEO Lloyd C. Blankfein available for an interview. Commission Chairman Phil Angelides said today in a conference call with journalists that on June 7, the panel subpoenaed Goldman Sachs after the firm tried to thwart a probe by overwhelming the commission with documents.

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FCIC Vice Chairman Bill Thomas said today on the call that he had no question that the New York-based Goldman Sachs will cooperate with requests. “It was the lack of specificity, or even the acknowledgment that what we asked for was in the piles of documents we got, that was cleared up,” he said, according to Bloomberg.

The US Congress set up the FCIC to study the causes of the financial crisis. Chaired by Angelides, the former Democratic California state treasurer, the commission has heard testimony from most of Wall Street’s top executives and regulators.

Early this month, officials from the California Public Employees’ Retirement System (CalPERS) said they were looking over the selection of Goldman Sachs Group in the system’s real estate pool, claiming the bank failed to disclose that it faced a Securities and Exchange Commission (SEC) probe. Since the SEC’s lawsuit, several shareholders have filed lawsuits against Goldman Sachs, claiming investors were harmed by the firm’s reluctance to disclose the fact it was the target of a formal investigation.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Legal experts say the Supreme Court ruling would likely hit claims from BP’s foreign shareholders in US courts while also negatively impacting the position of US investors.

(June 30, 2010) — Following a Supreme Court ruling that could curb investor claims against BP, New York state’s $132.6 billion Common Retirement Fund (CRF) is reevaluating its planned lawsuit against the oil giant for its management of the well in the massive Gulf of Mexico oil spill. However, the fund still plans to move forward with the BP lawsuit.

“We need to do additional analysis following the Supreme Court’s ruling, but now it’s just a question of how we’ll best proceed,” CRF spokesman Robert Whalen told ai5000. “We’re not rethinking – obviously we’re forced to reevaluate our legal strategy but our commitment to seeking remedy is unwavering.” He added that the New York pension will pursue its July 20 deadline to get a petition to be appointed as lead plaintiff for the BP suit and will go to foreign courts if necessary.

The New York pension alleges that BP had defrauded shareholders, misleading them over its safety record and preparedness to deal with oil leaks. CRM currently holds 14.1 million in BP overseas stock and 200,000 shares of BP shares sold in the US, Whalen confirmed.

Legal experts say the Supreme Court’s ruling, which may limit the expected number of investor claims against BP, is a loss for both non-US investors, who own the majority of BP, and American shareholders. The ruling has changed the playing field for New York’s pension, which bought many of BP’s securities directly from foreign markets rather than domestically.

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Last week, data compiled by Bloomberg showed US state pensions suffered a $1.4 billion loss from the BP oil disaster. The decrease in share price by BP has triggered mounting losses among institutional investors – along with pension losses, recent data has shown the governments of Norway, Kuwait, China and Singapore have lost $5 billion on BP Plc’s share price collapse.

BP has lost about half of its value since the April 20 explosion aboard a rig in the Gulf of Mexico that killed 11 workers and caused immeasurable destruction of the wildlife, beaches, and marshlands.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742