AIG Financial Products
| Company type | Subsidiary |
|---|---|
| Industry | Financial services, derivatives trading |
| Founded | 1987 |
| Founder | Howard Sosin |
| Defunct | December 2022 |
| Fate | Ceased operations and filed for Chapter 11 bankruptcy |
| Headquarters | New York, New York , United States |
Area served | Global (notably New York, London, Wilton Connecticut) |
Key people | Edward Liddy (CEO during 2008 crisis), Gerry Pasciucco (head of liquidation) |
| Parent | American International Group |
AIG Financial Products Corporation (AIGFP), a branch of American International Group headquartered in New York, New York with significant operations in London, was a pivotal entity during the 2008 financial crisis. Operating out of Wilton, Connecticut, AIGFP suffered enormous losses in early 2008 due to credit default swaps it had issued, having significantly misjudged the extent of default risk as the crisis escalated.
These financial setbacks led to credit rating downgrades for the entire AIG organization in September 2008, precipitating a liquidity crunch that nearly rendered AIG insolvent. Regarded as an institution too big to fail, AIG secured an $85 billion loan from the Federal Reserve Bank, which acquired a 79.9% ownership stake, effectively placing the insurer under government control. Following this, U.S. Treasury Secretary Henry Paulson revealed intentions to dismantle and liquidate substantial portions of AIG. To repay the Federal Reserve, the company divested numerous subsidiaries. AIGFP ultimately ceased operations in December 2022 and subsequently filed for Chapter 11 bankruptcy.
History
Established in 1987 by Howard Sosin, AIGFP concentrated on interest rate and currency swaps alongside broader capital markets activities. Its primary focus was on OTC derivatives, acting as principal in nearly all transactions related to capital markets, corporate finance, investment, and financial risk management instruments. The firm played instrumental roles in significant transactions such as the acquisition of London City Airport and the 2006 management-led buyout of Kinder Morgan.
AIGFP contributed to the evolution of commodity derivatives and indices by sponsoring influential academic research on commodity futures conducted by professors Gary Gorton and K. Geert Rouwenhorst. It also developed a specialized credit division dedicated to structured products like CDOs. In 2003, AIGFP integrated its subsidiary AIG Trading Group (AIG-TG), known for its expertise in OTC derivatives and for creating the Dow Jones-AIG Commodity Index (DJ-AIGCI) based in Greenwich, CT. The DJ-AIGCI emerged as a premier commodity benchmark consisting of 19 futures contracts; by mid-2007, global investments tracking this index reached approximately $38 billion.
From 1987 through 2004, AIGFP generated over $5 billion in pre-tax earnings for AIG. During this timeframe, AIG’s market capitalization expanded from $11 billion to $181 billion, while its share price increased from $4.50 to $62.34.
Crisis of 2008
The extensive trading activities of AIGFP in credit derivatives resulted in substantial losses that nearly caused AIG’s collapse, leading to a federal government rescue. Under CEO Edward Liddy, the decision was made to unwind all positions held by AIG Financial Products. In October 2008, Gerry Pasciucco, formerly vice chairman at Morgan Stanley, was appointed to oversee this liquidation following the takeover by the Federal Reserve.
The financial difficulties faced by AIGFP are prominently chronicled in Michael Lewis's book The Big Short.