Now raising intellectual capital
It’s time for someone in the Obama administration to read the riot act to Robert Benmosche, American International Group’s new $7 million chief executive.
Since getting the job, Benmosche has spent more time at his lavish Croatian villa on the Adriatic coast than at the troubled insurer’s corporate offices in New York.
And in the short term, Benmosche’s vacation strategy appears to be paying dividends.
This week, AIG’s shares surged 44 percent, to nearly $50, after Benmosche said that he intended to move slower than his predecessor in selling off AIG’s still viable divisions.
Catastrophe bond lovers and other insurance-linked securities enthusiasts should take a look at a report on insurance securitisation published today by the International Association of Insurance Supervisors (IAIS).
There is an interesting section in the report looking at the various cat bonds that have gone pear-shaped since the dawn of the market in the 1990s.
It’s long been suspected that Ken Griffin’s Citadel Investment Group took a big blow when Lehman Brothers went bust nearly a year ago. But Griffin and his management team have been reluctant to put a number on the damage to the Chicago-based fund.
That is, until now.
In a brief, one-page filing, Citadel claims it is owed some $470 million on a derivatives contract. The $12 billion hedge fund conglomerate offers no details about the derivatives deal in the proof of claim, submitted as part of the Lehman bankruptcy filing.
The Obama administration’s plan for reining in derivatives leaves unchecked one of Wall Street’s dirty little secrets: the ability of a derivatives dealer to redeploy cash collateral that gets posted by one of its trading partners.
On Wall Street, this practice of taking collateral and reusing it is called rehypothecation. In essence, it’s a form of free money for derivatives dealers to use as they please — even to repost it as collateral to finance their parent company’s own borrowings.
Defaults by catastrophe bonds, securities used by insurers to shift the risk of severe losses from natural disasters, have been few and far between.
When deals have run into trouble, it has often been due less hurricanes or earthquakes than some flaw in the way they were structured, such as the four bonds that imploded last year because of their links to Lehman Brothers and dodgy asset-backed debt.
With a name like Contrarian Capital one would think this Greenwich, Conn. hedge fund would have been savvy enough to sniff-out the impending trouble at Lehman Brothers. But apparently, the managers of Contrarian weren’t contrarian enough.
A week ago, Contrarian filed a rather large $100 million notice of claim in the Lehman bankruptcy, an indication that it was a bit too bullish on the failed investment house. But what makes the claim really interesting is that it stems from losses on Lehman-issued structured notes–something often sold to retail investors.