A Meek Ending For Mighty Unit That Gutted AIG

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By Brady Dennis
Washington Post Staff Writer
Saturday, February 21, 2009

WILTON, Conn. -- In this small town an hour north of Manhattan, in a bland office park alongside suburban strip malls and gas stations, the unit that wrecked American International Group is dying a slow death.

The employees of AIG Financial Products are mostly in their 30s and 40s. They roam the firm's open trading floor in khakis, button-down shirts and sweaters -- a far cry from the pinstriped pandemonium of Wall Street. Everything appears perfectly normal, from the ringing phones to the meetings unfolding in glass-walled conference rooms to the company newsletters arranged neatly on a lobby table.

But the mission of this once-mighty enterprise has shifted in recent months. Once a virtual money factory, Financial Products is no longer growing and profiting, but shrinking and fading. Its workers, once power brokers of billion-dollar deals, are methodically extracting the firm from a tangled web of transactions that bound it to nearly every major financial institution in the world.

In recent years, Financial Products wrote a series of private contracts that faltered and came back to haunt its parent company in a very public way, leaving the insurance giant on the brink of collapse. Fearing that the failure of AIG could send shock waves throughout the financial system, the federal government stepped in last September with the single largest bailout of a company in U.S. history, a total rescue package of up to $152 billion.

Taxpayers now own nearly 80 percent of AIG. Federal officials are closely monitoring the company's operations and even signing off on key corporate decisions.

In November, AIG hired veteran Morgan Stanley executive Gerry Pasciucco to dismantle Financial Products, to terminate its outstanding trades, eliminate as much risk as possible and shut down its offices around the globe.

"My task is very narrow and very limited," Pasciucco said.

He is a grim reaper of sorts. His task is to take a firm that was once a darling of the financial world and make it go away.

* * *

As word came of the federal bailout in September, a cloud of disbelief and disgrace settled over Financial Products. The firm founded on avoiding risk was suddenly synonymous with recklessness and ruin.

"It was a horrifying experience, watching it happen," said Jim Haas, the firm's co-leader of North American marketing and an employee since 1996. "There was a real badge of honor that one carried when they were able to tell people they worked for AIG, and in particular for AIG Financial Products. That vanished in a flash."

For years, the firm carved out a reputation as an innovative force envied and emulated on Wall Street. It made billions of dollars in the complex world of financial derivatives. But in 1998, executives approved a break from the firm's cautious past. Financial Products began writing credit-default swaps, which essentially insured a company's debt in case of default.


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© 2009 The Washington Post Company

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