Goldman, AIG and the government renew their friendship

April 15, 2013

Scanning Goldman Sachs’s newly published interactive annual report on Monday, Unstructured Finance had to do a double-take upon seeing American International Group highlighted as a client success story.

Yes, that’s right. AIG.

Goldman’s site features a 3-minute, 47-second video with two investment bankers, Devanshu Dhyani and Andrea Vittorelli, talking about their work on various AIG deals to help repay the U.S. government.

It also has photos of bankers around the globe who were involved with AIG stock sales, stock buybacks and assets sales, including Chris Cole, co-chairman of investment banking; Yan Liu, Ed Byun Dan Dees and Phyllis Luk, bankers based in Hong Kong; and Michael Tesser and Terence Lim, bankers based in New York.

“The most important aspect of success here was the full repayment of the U.S. government – $182 billion of funds committed to stabilizing AIG at the height of the financial crisis – not only repaid back in a matter of years but repaid back at a profit of $23 billion to the US taxpayer,” says Dhyani. “I think that’s a tremendous achievement for AIG, for people who are involved in this process.”

Jim Millstein, a former Lazard banker who oversaw the government’s stake in AIG at the U.S. Treasury Department until 2011, also contributed a quote to the site.

“At a time when many in D.C. thought the government was going to lose substantial money on AIG, Goldman worked closely with Treasury and the company itself on implementing a restructuring plan that ended up netting billions of dollars in profit for taxpayers,” said Millstein, who now runs his own restructuring firm.

For those who follow bailout sagas, the idea of a Goldman bankers handling AIG’s bailout repayment and being congratulated by a former government official has a certain degree of irony.

One of the biggest scandals coming out of the financial crisis was a $12.9 billion payment AIG made to Goldman Sachs after its bailout in the fall of 2008. The payout was related to credit default swaps that Goldman had purchased from AIG in the years leading up to the crisis, to protect against potential losses on mortgage securities.

As mortgages went belly up in 2007, Goldman began demanding payments from AIG. The two parties had a drawn-out, heated battle about the amount of money Goldman deserved. But when the government took over AIG’s finances, the insurer paid Goldman and more than a dozen other banks 100 cents on the dollar.

Goldman got special scrutiny because it received more than other banks, and because the country was in the midst of a populist backlash against Wall Street. Within four months, Goldman Sachs had become the “vampire squid” – a moniker that stuck – and dozens of conspiracy theories about Goldman being “Government Sachs” took root.

But while critics raked Goldman over the coals for the AIG deal, the investment bank and insurer were already making amends.

In fact, when AIG’s current CEO, Robert Benmosche, took over the reins of the insurer in mid-2009, he fired investment bankers from Blackstone Group who had been advising AIG on its turnaround plan, and re-established the company’s longstanding relationship with Goldman Sachs.

Cole and Millstein spearheaded an effort to develop a new plan to sell off AIG’s assets and repay the government. Last year, AIG completed that plan, having not only repaid the government’s $182 billion in support, but generating a $23 billion profit. (As long as you exclude the incalculable cost of moral hazard.)

But the re-establishment of AIG’s connection with Goldman Sachs has generally been kept quiet until now. It seems that being the taxpayer’s hero via AIG was not the kind of thing Goldman wanted to brag about until all was said and done. Today, Goldman is even promoting its story on Twitter.

“It’s empowering to see the effect it had on the company in getting its message out there to its counterparties, to customers that this company was on its feet again, it was moving towards this new chapter in its life, and it was a watershed moment,” said Dhyani.

A Goldman spokesman was not immediately available to comment on the bank’s decision to highlight AIG as a success story, but we will update when we hear back.

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