Aig Fair or Foul?

In: Business and Management

Submitted By markflinoil12
Words 559
Pages 3
The Ethical Dilemma of AIG

Fair or Foul? A matter of public opinion.

American International Group (AIG) was established in 1919 by Cornelius Vander Starr in Shanghai, China. He became the first westerner in Shanghai to sell insurance to the Chinese. After turbulent times and the hostile takeover of the communist regime, he left for greener pastures in 1949 and ended up in New York City. While in New York, the company began to grow and prosper. I wide range of premium services was being offered and the future looked bright. The company went public in 1969. Fast-forward thirty-five years, no one could have prepared for what was about to happen. In 2005 an accounting scandal rocked AIG to the tune of $1.6 billion. Criminal charges were filed against many of the company’s top executives. The summer of 2008 was a time that began to send shockwaves around all of the world markets. Financial statements were disclosed and stock prices began to fall rapidly. On September 16, 2008 AIG suffered a liquidity crisis following the downgrade of its credit rating. Industry practice permitted firms with the highest credit ratings to engage in high-risk investment practices. Credit default swaps without depositing any form of collateral with their trading counter-parties.

The Federal Reserve announced the creation of a secured credit facility of up to $85 billion to keep the company from completely collapsing. In exchange, the government would receive an 80% equity stake in the company. By September 16, 2008, AIG’s stock prices had fallen over 95% to just $1.25 a share. The current 52-week high was over $70. The company reported over $13.2 billion in losses in the first six months of the year. As November came around, the U.S. Treasury would announce another $40 billion worth of AIG preferred stock under TARP.

Controversy really began when…...

Similar Documents

Ethics Aig

...Ethics Paper: AIG Introduction American International Group Inc. (AIG) is a multi trillion dollar insurance giant. AIG originated in China in 1919 and was perceived as a humble honest company (Gilani, 2008). Within the last few years AIG has been at the forefront of much debate about their financial decisions. A few attributed to AIGs demise was their accumulation of misplaced bets on credit default swaps. AIG also was ran by a CEO named Maurice R. Greenherg who grew the company aggressively and diversified the insurance company to a trillion-dollar balance sheet. AIG found its investments going bad when the housing market began to crash (AIG: What Went Wrong). Analysis AIG was the world’s largest insurance company. The company originally a humble honest company that was founded in China in 1919 and up until recently had a reputable reputation. There are many steps leading up to AIGs financial hardships such as their participated in global trade of derivatives and invested in mortgage-related investment portfolios and collateral calls on credit defaults (Actions Related to AIG). An associate company of AIG was writing insurance in the form of credit default swaps. These swaps offered buyers protection against losses on debts and loans of borrowers in the amount of $447 billion (Gilani, 2008). AIG also participated in collateralized debt obligations (CDOs) that mainly incorporated subprime mortgages and Alt-A mortgages, just to name a few. AIG used these premiums as...

Words: 668 - Pages: 3

Aig Case

...INTRODUCTION In this memorandum, I will address the incentives that Michael Joseph and the E&Y audit team had in the AIG case. Joseph and the audit team violated the AICPA Code of Conduct, particularly for section 90 and section 101. In addition, Joseph violated the AICPA section 50 pretending that he had not talked to the audit team. INCENTIVES According to SEC, Michael Joseph should have know that PNC’s SPE (Special Purpose Entities) transactions were not in compliance with GAAP. Also, Joseph’s dual role in both AIG and PNC resulted in a conflict interest for him. However, Joseph still chose to cooperate with AIG in issuing report stating that the nonconsolidated accounting treatment was an appropriate application of GAAP. Several incentives pushed him to do so. First, since AIG had an extensive role in global credits and insurance markets, to build a positive relationship with AIG for Joseph was beneficial in the long-term. As Joseph accepted the offer from AIG, the potential buyers went to Joseph to consult accounting-related issues, which raised Joseph’s reputation as well. In addition, working for such a big company as AIG brought Joseph huge economic return, which could be another incentive for Joseph to take the risk. The E&Y audit team for PNC directly contacted Joseph to determine whether PNC’s proposed SPE would be GAAP-compliant. On one hand, PNC’s external audit firm was E&Y so that E&Y should take the responsibility to handle the SPE issues. On the other......

Words: 772 - Pages: 4

Coping with Financial and Risk at Aig

...and expertise which distinguish AIG and are an integral component of the value proposition that we bring to our customers, employees and all of our communities as we strive every day to truly Deliver The Firm. In order to execute our Deliver The Firm strategy, AIG expects every employee to collaborate with colleagues throughout the organization, manage risks, comply with all applicable regulations and optimize operational efficiencies. A Message from Anastasia D. Kelly In 1919, 27 year old Cornelius Vander Starr founded an insurance agency in Shanghai, China that established the roots of the organization that became AIG. Starr was not a wealthy young man. He built a company by delivering on his commitments to customers and business partners. He acted with respect for local customers and his employees, hard work, entrepreneurial spirit and uncompromising integrity. Starr’s was the right way to build a great company then. There is no other way to run a great company now. We have an exceptional legacy. This legacy is the strong foundation for our business today in the complex, highly regulated world in which AIG operates. This Code of Conduct is a tool to help each of us live up to our shared corporate Values and the commitments that guide us. This Code is neither a comprehensive resource nor a substitute for sound judgment. It is a summary of standards intended to drive integrity throughout AIG. In the 130 countries and jurisdictions in which AIG does business, words like......

Words: 8835 - Pages: 36

Aig Accouncing Scandal 2005

...Wei Kevin Luk Kevin.luk@stmartin.edu Wei Kevin Luk Kevin.luk@stmartin.edu AIG’s “LOSs Reserve” accounting Scandal 2005 AIG’s “LOSs Reserve” accounting Scandal 2005 Introduction AIG, American International Group Inc., is one of the top multinational insurance corporations. AIG, with asset of 556 billion, provides insurance service for more than 150 different countries and it has over 630, 000 employees over the world. Even though AIG is such a giant corporation, it has encountered financial problems in the early 2000s. Under financial pressure and a lack of internal control, AIG have committed frauds resulting in several scandals. One of the accounting scandals was disclosed during 2005 which involved a material mis-statement due to false transactions during 2000. This scandal set to prelude leading the downfall of AIG in 2008. In this paper, I will analyze the cause, the transactions and finally effects of the scandal. The Accounting Scandal The Players The CEO of AIG was Maurice “Hank” Greenberg. Greenberg joined AIG in 1962 and led AIG for thirty eight years until his retirement in March 2005. Greenberg was not only the CEO, but also the chairman of the board of AIG. AIG also have several subsidiaries, which include National Union Fire Insurance Company of Pittsburgh (NUFIC) and Hartford Steam Boiler Inspection (HSB). Their financial information are consolidated in AIG’s financial statements. The scandal also involves another......

Words: 1927 - Pages: 8

Aig Report

...AIG continued to streamline its core insurance operations and restructure businesses, over the past few years, to enhance capital allocation and operating leverage. For this, AIG has been using the proceeds gained from the disposition of redundant businesses along with earnings from its ongoing business operations. The gradual recovery in the economy and equity market, post the downturn in 2008, has helped AIG to recoup the value of its investments and dispose of its redundant and risky businesses at attractive valuations. This in turn has helped in consistent improvement of the financial leverage along with the reduction in interest expenses. Consistent payoffs along with strategically divested assets improved the operating leverage and led to an operating cash flow of $3.95 billion in the first nine months of 2013, which surged from $3.68 billion in 2012 and an outflow of $81 million in 2011. Moreover, reduction in debt by $6.27 billion in the first nine months of 2013 from 2012-end level, through its liability management initiatives, helped improve debt-to-capital ratio to 17.6% at the end of Sep 2013 from 20.5% at 2012-end and about 31% at 2010-end. The redemption of notes worth $500 million in Sep 2013 will further improve the financial leverage. At the end of Sep 2013, AIG s DIB had excess liquidity worth $2.9 billion, while majority of DIB s debt is scheduled to mature in the next 5 years, thereby enhancing capital flexibility and buoyancy for long-term growth. Going......

Words: 785 - Pages: 4

Fair?

...When Mary Jones was first hired she was eager and she had the correct mind sent to do well in her new Job. Her mind-set and drive to perform well, is what led to her 10% raise. However, after her encounter with Sue and hearing about Sue being hired for $5,000 more than Mary was. Mary’s perception of fairness at her workplace has been changed for the worse. After all they both attended the same college and had a similar academic performance in that college. Sue indirectly has become one of Mary’s referent others, everyone seeks a fair balance between what we put into our job and what we get out of it. At this stage Mary’s sense of equity is low and people respond to a feeling of inequity in different ways. Mary’s current response may be to go and confront her boss in the heat of the moment, which would have multiple negative repercussions, if she were to do so. Given the fact that Mary is intelligent, I do not see this being her course of action. Most likely she well keep it to herself or confide in friends and or coworkers that she trusts. However, as a result of this new found information Mary’s howl attitude and work ethic towards her job will most likely change for the worse. In the long term Mary will harbor a resentment for Tom her manager and indirectly for Sue. Most people in a similar situation would reduce effort and application and become inwardly disgruntled, or outwardly difficult, or even disruptive. Other people might seek to improve their...

Words: 307 - Pages: 2

Fall of Aig

...over as CEO. According to the numbers, the company had brought in over $1 billion that year. In 2002, it came out that AIGFP had helped conceal the bad assets of PNC Financial services by setting up a “special purpose entity” to undertake the assets. By 2004, AIG had paid an $80 million fine for helping conceal these bad assets. Later in 2005, rumors about bad accounting practices were going around and Hank Greenberg stepped down as his role of CEO. When he did this, credit-rating agencies dropped AIG’s credit rating from AAA to AA. This required AIGFP to have over $1 billion in collateral for their credit default swaps. After taking a second look at the portfolio, it became alarming that many of the credit-default swaps had to deal with subprime mortgages, meaning that the default risk was large if the housing market went under. By the end of 2005, Cassano had wisely chosen to stop dealing in credit-default swaps, but he could not undue the $80 billion of collateralized debt. However, Cassano stuck to the idea that they could he could not see how they could lose anything on these investments. In August 2007, the housing market plummeted and companies, starting with Goldman Sachs, required collateral from AIG that was insuring the mortgage backed securities. By November, AIG’s stock prices had plummeted 25 percent, and AIGFP recognized a loss of $352 million. Even with this, Cassano and Sullivan still tried to convince investors that everything was alright. ......

Words: 3262 - Pages: 14

Foul Ball

...Foul Ball 1. What argument would you make on behalf of Emily that the owner of the baseball park had a legal obligation to protect her from wild baseballs? The land, for which the baseball park is on, is a public place. A public invitee is one who is invited and enters the land for the purpose for which the land is held open to the public, in this case a baseball field. The owner of this public land has a duty to protect his invitees with reasonable care, because he is the possessor of the land. Using reasonable care requires the defendant to recognize the risks created by his actions and to act reasonably in light of those risks. I would make the argument that the defendant breached his duty with negligence by not having a fence surrounding the baseball field to prevent such injuries from occurring (Edwards & Edwards, 2012). 2. What argument would you anticipate the owner would make in response? In response, I think the owner would claim that he owed no duty to plaintiff because she was not on his property when the injury occurred; she was walking on the sidewalk. In addition, I think he would respond with the foreseeability approach. Defendant could claim that he was not acting in a unreasonable manner, because it is common knowledge that injuries happen from sports, and by walking by the baseball field, plaintiff took that known risk of injury happening (Edwards & Edwards, 2012). 3. What are the laws, both statutory and...

Words: 596 - Pages: 3

Aig Bailout

...Can We Expect A Regulated CDS Market? Derivatives Project Xilin Yang (Celine) Introduction The article introduces credit default swaps and explores the problems of the credit derivatives. By analyzing the AIG’s bailout, the article describes the regulation gap in the CDS market and states the regulation reform after the crisis. Part I is background, generally introduces the Wall Street crisis. How it happened? What consequence it has? Part II is mainly about AIG’s CDS business: how AIG got involved in the crisis and why the biggest world insurance company suddenly collapsed. Part III is about credit default swaps: definition, construction, and problems. Part IV is concerned on the regulation reform after AIG’s failure. Wall Street Crisis Speaking of the Wall Street crisis, people all know it proceed from subprime crisis. The relatively low interest rate prompts banks to issue large amount of housing loans. To transfer default risk embedded in those loans, investment banks package those loans and mortgages into student loans, car loans and credit card debt, which form the so-called collateralized debt obligation (CDOs). All these derivatives depend on the housing loans. In the era of low interest rates, house prices rise rapidly and promote the rapid development of the housing loans business. With steady stream of housing loans into financial derivatives products, different ranks of products are packaged to sale out. The good view of economy makes those potentially......

Words: 2738 - Pages: 11

Aig Scandal

...Group (AIG) and American International Group Financial Products (AIGFP) were directly in the center of the collapse. Within AIG and AIGFP, a few managers stood out when it came to involvement in the financial scandal. Maurice “Hank” Greenberg is one manager that undeniably stands out. He was the founder and Chief Executive Officer of AIG until 2005. He micromanaged his workers and gave them little freedom (Bandler, Boyd, and Burke). Obviously, his managing tactics influenced the demographics of AIG tremendously. Joe Cassano, another core manager, was the CEO of AIGFP. He implemented credit-default swaps (CDSs) and oversold them, resulting in AIG having to file for bankruptcy because it couldn’t pay the buyers of these CDSs back (Serwer and Sloan). While these two men were heavily involved in the cause of the collapse, they raised many questions regarding the fact that AIG’s questionable decisions passed regulations and audits. Many people have looked into how AIG and AIGFP didn’t cause fuss while they were getting audited. How did they pass all of these regulations without any problems? It has been noted that Greenberg had previous relations with a lot of so-called “big-shots” in the business world that could have had an impact on the results of these audits and regulation checks (Cass Business School). This may or may not have influenced the result of AIG during 2007 and could have potentially prevented the financial crisis if regulators did end up lying about......

Words: 2991 - Pages: 12

Aig Incomplete

...Title: American Insurance Group (AIG) Group Name: Date: Executive Summary: Company Background American International Group, Inc. (AIG) is a world leader in insurance and financial services. It is a holding company for a network of subsidiaries primarily engaged in insurance and insurance-related activities, including property, casualty, life, financial services, retirement savings products, asset management, and aircraft leasing. It is headquartered in New York City, and operates in more than 130 countries and jurisdictions. In 2006, AIG had sales of $113 billion and 116,000 employees (Saporito, 2009). According to the 2008 Forbes Global 2000 list, AIG was once the 18th-largest public company in the world. Its common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo. AIG faltered in America’s sub-prime mortgage crisis. It had traded heavily in credit default swaps and could not meet its obligations. In that case, United States government came to its rescue with an $85 billion bailout on September 16, 2008. As of March 2009, AIG has taken a major step toward cleaning up its image by reorganizing its insurance units under American International Underwriters. It is the foreign general insurance segment of AIG. AIU and its subsidiary brands are now distinct from AIG (National News, 2009). The holding company, itself, is currently undergoing rebranding that includes a new name, which is expected to be revealed in the......

Words: 1258 - Pages: 6

Internship Fair

...Internship Fair 2015 lse.ac.uk/careers Contents Start today. Change tomorrow. 1 LSE Careers can help you find an internship Our work impacts are the highest level of global business. We advise some of the world’s most important organisations on the issues shaping tomorrow. 3 Map 5 Participants 6 It’s the perfect environment for graduates who want to make an impact on business and their own careers. Find out more and apply ukcareers.ey.com/graduates Upcoming events Internship Fair Thursday 15 October 5.30-9pm Finance Industry Overview seminar Wednesday 21 October 1-3pm Telephone screening seminar Wednesday 28 October 1-3pm How to perform well in group exercises seminar Thursday 29 October 1-3pm Read your weekly LSE Careers enews and stay up to date on careers seminars, employers on campus, job opportunities and much more! Contact details LSE Careers is open: Monday to Friday 9.30am-5pm Thursday 9.30am-8pm Telephone: +44 (0)20 7955 7135 © 2015 Ernst & Young LLP. All Rights Reserved. Assurance | Consulting | Tax | Transactions SAW 5.02 (Saw Swee Hock Student Centre) 1 Sheffield Street London WC2A 2AP careers@lse.ac.uk lse.ac.uk/careers @lsecareers facebook.com/LSECareers This brochure was correct at the time of going to print LSE Careers can help you find an internship 2 Internships are a great way to gain experience and see what it’s really like to......

Words: 5416 - Pages: 22

Aig Case

...AIG: From Bailout to Bonuses (2008) Based on a paper by: Paige Vandermyn & Holden Canty Summary by: Andrew F. Roberts During 2008's "too big to fail" bailouts exercised by the federal reserve, many struggling multi-national companies were awarded cash in hopes of avoiding bankruptcy. One company deemed simply too big to fail was the American International Group, Inc. (AIG for short), which provides insurance for individuals and businesses. The company, which would have almost certainly been forced into bankruptcy if not for the bailout, received hundreds of millions of dollars to keep from drowning. However, in an utterly shocking series of events, the company paid $218 million to top executives in bonus money. In a completely unethical fashion, the company used taxpayer bailout money to fund vacations and private jet flights to the executives who many blamed for causing AIG's financial troubles in the first place. Additionally, many senior employees were flown to California for a "retreat" including spa treatments and golf outings. This retreat cost over $400,000 dollars. By the end of 2008, AIG had received over $100 billion in bailout money. Unfortunately, the general public was not sure if the money was going toward improving business of simply paying for luxuries of the organization. These actions by AIG completely ignored each and every theory related to the study of ethics. In regards to the individualistic theory of ethics, AIG seemingly followed...

Words: 660 - Pages: 3

Aig Scandal

...On March 14, Maurice “Hank” Greenberg resigned his position as CEO of American International Group (AIG) amidst allegations of fraud and accounting manipulations at the world’s largest insurer. In an attempt to contain an escalating scandal, the company fired two more top executives on March 21, including the chief financial officer, Howard Smith. Though not a household name, AIG is the 10th-largest corporation in the United States. It has close ties to the political establishment, counting on its board of directors William Cohen, the former defense secretary in the Clinton administration, and Richard Holbrooke, the former US ambassador to the United Nations. Greenberg, who remains the chairman of the board of directors, has long been considered the titan of the insurance industry. In 1987, Ronald Reagan offered him the number-two position at the Central Intelligence Agency, presumably because of his international connections, particularly in Southeast Asia. He declined the nomination. Because of its enormous size and international reach, the investment firm Payne Webber wrote in 2000, “We have come to view AIG as almost the equivalent of a sovereign corporate nation, with its own diplomatic ties, economy, and head of state.” The evidence of fraud—including recent revelations as well as information that has come to light over the past year—suggests that AIG arranged deals to manipulate financial figures, both its own and those of other companies. It is yet another......

Words: 1899 - Pages: 8

Aig Bankruptcy

...American International Group (AIG) bankruptcy The bankruptcy of the American International Group caused a large crash in the US economy after depression, since AIG are filing bankruptcy and are asking the help from the congress for the bailouts. AIG is considered one of the largest companies in the insurance market and it is almost bankrupt. It had already filed bankruptcy once before and still could not recover and need more money. One thing that can be obtained from the article is that there has to be some amount of transparency into the operations of the firms who are big like AIG, I think the major reason behind all this trouble was that the operations were not disclosed to the public and therefore the authorities got a chance to manipulate them. This way they covered up one time the problems in the form of first bailout, but because the problems were quite large and could not be solved, they went bankrupt again. I think this all would have not happened if the first bailout was disclosed to public and common stakeholders. I also somewhere think that the authorities misused their rights. I disagree with the way they handled the first bailout request. I feel that the authorities should have taken the legal actions and let the courts decide what to do. It is not acceptable for me ethically that some big issues are tried to be covered up. In addition to that, I also think that oligopoly may not be useful any more in the economy,......

Words: 313 - Pages: 2