15 September 2008

NY Fed Hires Morgan Stanley to Evaluate AIG Alternatives. Who Will Evaluate Goldman?

Is the NY Fed going to hire Morgan Stanley to develop solvency options for Goldman Sachs when its day of reckoning arrives?

You could put those meetings on Pay-Per-View for the investment community.

Ok, Floyd, er Lloyd and you too Dave, let's see your books, chop chop. Oh yeah and top off my Chivas would'ya? We've got a VIP table reserved at Scores for a conference tonight and YOU'RE paying for it. Oh yeah and we need a list of the recent comps for your traders too. We're drawing up a short list for some special overseas clients.

We'd suggest it take place at Madison Square Garden, in a cage match.

Fed Hires Morgan Stanley to Evaluate A.I.G. Options
September 15, 2008, 1:56 pm

The Federal Reserve has hired Morgan Stanley to advise it on potential lifelines for the American International Group, the large insurance company, people briefed on the matter said Monday.

The investment bank will help evaluate the risk that A.I.G. poses to the already battered financial system, and help the Fed negotiate possible solutions, which may include a $20 billion bridge loan to the insurer, these people said.

The Fed’s move may signal that it considers A.I.G.’s faltering financial health a significant threat to Wall Street. It would also be a remarkable move for the Fed after it declined to extend additional help to Lehman Brothers.

A.I.G. has already won approval from New York regulators to borrow $20 billion from its subsidiaries, as it seeks to shore up its capital base for the possibility that its vital credit ratings will be downgraded.

The firm has become one of the largest providers of insurance to complex mortgage securities, leaving it heavily exposed to the sagging housing market. Major credit ratings agencies have threatened to downgrade A.I.G.’s debt, a move that could prompt its trading partners to demand more capital in their transactions — and threaten the firm’s solvency.

A.I.G. has already raised $20 billion this year. But even that amount of capital has not averted a crisis.

Beyond seeking help from the Fed, A.I.G. is also considering selling off assets like its auto business. It rejected an offer by the private equity firm J. C. Flowers & Company to buy $8 billion in preferred shares — a bid that included an option to buy the whole firm at a discounted price. And two other buyout firms, Kohlberg Kravis Roberts and TPG, withdrew offers to buy preferred shares on Sunday because a Fed backstop seemed unlikely to materialize.

The firm’s sickly financial health was a prominent topic in weekend talks among Wall Street chieftains who gathered at the Federal Reserve Bank of New York to discuss the potential collapse of the investment bank Lehman Brothers. A.I.G. had become one of the biggest underwriters of complex debt securities known credit default swaps, used as insurance for a wide range of products, including the mortgage instruments that have been the bane of Wall Street for the past year and a half.