Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
Reuters – Former American International Group Inc executive Joseph Cassano is under investigation by U.S. prosecutors for possibly misleading auditors and investors about subprime mortgage-related losses, according to a Bloomberg report citing people familiar with the probe.
The report said investigators are asking auditors at PricewaterhouseCoopers about memos they wrote last fall on how Cassano and other AIG executives valued contracts protecting $62 billion in mortgage-backed securities.
The Times and Democrat – In a record bailout of a private company, the government on Monday provided a new $150 billion financial-rescue package to troubled insurance giant American International Group, including $40 billion for partial ownership.
The action, announced by the Federal Reserve and the Treasury Department, was taken as it became increasingly clear that an original financial lifeline thrown to AIG in September would be insufficient to stabilize the teetering company. All told, the moves boost aid to the company to more than $150 billion.
Fed officials, however, expressed confidence that the money would be repaid to taxpayers.
The $40 billion infusion comes from the recently enacted $700 billion financial bailout package. The government is buying preferred shares of AIG stock, giving taxpayers an ownership stake in the company. In turn, restrictions will be placed on executive compensation at the firm.
Washington Observer Reporter – Wall Street’s initial enthusiasm about a $586 billion Chinese stimulus package fizzled Monday, as investors succumbed to anxieties about how U.S. companies will survive a severe pullback in spending.
Stocks got a short-lived boost from China’s plans to boost its economy through a mix of spending, subsidies, looser credit policies and tax cuts. The package could benefit multinational companies with business in China such as General Electric Co. and Caterpillar Inc.
But Wall Street’s optimism quickly waned, as it has tended to do since the mid-September downfall of Lehman Brothers Holdings Inc. and government takeover of the troubled insurance giant American International Group. Market participants realized that while China’s stimulus is a positive sign that governments around the world are working to fix the global economy, the stimulus itself will likely have only a limited effect in the United States.
Boston Globe – TODAY American International Group releases third-quarter results. The insurance giant is expected to post a loss of 90 cents a share, compared with a $1.35-a-share profit last year.
Starbucks Corp. releases fourth-quarter financial results and is expected to earn 13 cents a share, down from 31 cents last year.
TOMORROW TJX Cos. reports third-quarter results. Last year, the Framingham retailer posted net income of 54 cents a share.
WEDNESDAY The House Financial Services Committee holds a hearing on mortgages.
Macy’s Inc. is expected to report a third-quarter loss of 19 cents a share, compared with year-ago net income of 10 cents a share.
THURSDAY The House Oversight and Government Reform Committee holds a hearing on regulation of hedge funds.
Reuters – Fidelity Investments’ Harry Lange, manager of its one-time star Magellan fund, made what now looks like a poorly timed move in June: he nearly doubled his holdings of AIG.
Lange, who has already seen other financial bets sour, driving the $35.2 billion (19.6 billion pound) fund down 17.3 percent since July, may be just one of several fund managers to get burned by American International Group Inc’s meltdown.
Though it’s unclear where Magellan’s holding stood when the government launched its $85 billion government bailout of the giant insurer on Tuesday, Lange in June boosted the fund’s holdings of AIG to $865.1 million from $475 million in May.
And that was just a piece of the substantial 5.81 percent stake, or 156 million shares, held by Fidelity, the world’s biggest mutual fund company, as of the end of June, according to Reuters data.
Reuters UK – "Does anyone know what is happening with the markets?" former U.S. Treasury Secretary Lawrence Summers asked after stepping out of his car and into a hedge fund industry conference in Connecticut on Tuesday.
And he wasn’t the only one wondering.
As Summers, now a managing director at hedge fund DE Shaw, and hundreds of managers and investors scanned Blackberries for prices and dialled cell phones for updates, the words Morgan Stanley American International Group tripped off dozens of tongues and faces went pale.
Only one day after watching financial markets tumble as Lehman Brothers Holdings hurtled toward liquidation and Merrill Lynch stunned investors with a surprise sale to Bank of America Morgan Stanley’s share price tumbled but its CFO declared that things were getting out of hand.
AIG’s shares sank 48 percent after the market closed as the insurance group struggled to get the funding it needed to survive.
"I would describe the mood here as a little bit wary," said Raj Mohamad, who travelled to the two-day conference from Singapore where he helps U.S. hedge funds find Middle Eastern investors as Managing Director at Five Pillars Pte Ltd.
Portsmouth Herald News – The Federal Reserve resisted a cut in interest rates Tuesday and then forged a plan to take over American International Group Inc. and rescue the insurance giant from the brink of bankruptcy with an extraordinary $85 billion loan.
The moves, along with a slight rebound on Wall Street, offered some respite after the chaos that shook the financial system Monday when investment house Lehman Brothers declared bankruptcy and the Dow Jones industrials suffered its biggest point drop since the 2001 terrorist attacks.
Investors worried that a failure by AIG, the world’s largest insurer, would set off even more financial turmoil.
The Federal Reserve said in a statement it determined that a disorderly failure of AIG could hurt the already delicate financial markets and the economy.
It also could "lead to substantially higher borrowing costs, reduced household wealth and materially weaker economic performance," the Fed said.
"The president supports the agreement announced this evening by the Federal Reserve," said White House spokesman Tony Fratto. "These steps are taken in the interest of promoting stability in financial markets and limiting damage to the broader economy."
New York (HedgeCo.Net) – In an effort to stave off bailout rumors, the Federal Reserve is urging American International Group Inc. to find private investors and warns that they should not expect a loan from the central bank. However, talks have become increasingly difficult in the wake of all three major ratings agencies casting a shadow of doubt of the company.
AIG had its key credit ratings cut late on Monday to A minus, down from AA minus by Standard & Poors, due to the huge losses the company has endured from its mortgage-backed investments and credit derivatives. S & P warns that they could face further ratings cuts, unless they ”implement further liquidity options” and/or complete ”the successful sale of at least a portion of its business assets.”
Meanwhile, Moody’s cut AIG’s ratings to A2, down from AA3 while Fitch Ratings cut their ratings to A, down from double A minus.
The ratings cut could potential cost AIG billions from collateral payments on its derivatives trades.
Governor David Patterson facilitated a deal between AIG and New York state insurance regulators when he allowed the company access to $20 billion of assets from its subsidiaries to use as collateral against any needed loans. Patterson is hoping this will prevent a repeat of what happened with Lehman Brothers Holding Inc. and Bear Stearns.
Shares of AIG were trading as low as $3.50 on Monday and closing at $4.76, down over 60 percent.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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Bloomberg – Just when American International Group Inc. shareholders figured things couldn’t get worse at the world’s largest insurer, profit from the company’s private equity and hedge fund investments is evaporating.
Earnings from so-called alternative holdings were probably close to zero in the second quarter, after soaring 77 percent to $1.02 billion a year earlier, said Citigroup Inc. analyst Joshua Shanker.
The drop follows the worst first half for hedge funds in almost two decades and a 73 percent decline in the value of announced leveraged buyouts, according to data compiled by Chicago-based Hedge Fund Research Inc. and Bloomberg.
Reuters – American International Group Inc’s asset management division has reached a joint venture agreement with Larch Lane to make seed funding investments in hedge funds.
The AIG Investments and Larch Lane venture expects to invest between $50 million and $200 million in each deal, according to a joint statement on Wednesday.
Larch Lane is an affiliate of Old Mutual Asset Management, the U.S. asset management group of Old Mutual Plc.
AIG Investments currently manages about $10 billion in hedge fund assets, spread among 130 hedge funds. Larch Lane has invested in 22 hedge fund start-ups over the last seven years, according to the statement.
"This venture gives us the opportunity to not only invest with up-and-coming managers, but to also participate more directly in the profit growth of a rapidly growing industry," said Robert Discolo, AIG Investments’ head of hedge fund strategies.
