Fed calls emergency consultants to treat AIG
Güncelleme Tarihi:
Bloomberg
Oluşturulma Tarihi: Şubat 07, 2009 00:00
WASHINGTON / NEWYORK - The massive bailout of American International Group, the biggest US insurer by assets, is proving to be a tough and complex job. The overwhelmed Federal Reserve has hired an army of outside lawyers and consultants for the task.
Every Sunday night, New York bankruptcy lawyer Marshall Huebner spends a 13-hour shift on call as an emergency medical technician. His day job involves work on another sort of rescue: The U.S. government’s $152.5 billion bailout of American International Group.
"There’s a stronger parallel than you would think," Huebner, a partner at Davis Polk & Wardwell, said in an interview. Helping resuscitate the insurance giant takes "a lot of the same qualities that I think stand you in very good stead with emergency medicine - the ability to remain calm in almost any situation, and the ability to assess, triage and treat, even in a crisis."
Huebner, 41, is part of an army of outside lawyers and consultants the Federal Reserve has called upon to help fight the biggest financial crisis in 70 years. While the central bank won’t disclose how much work it has outsourced, Fed watchers say the institution is relying on Wall Street experts to an unprecedented extent, seeking help from insiders in the very industries where the turmoil originated.
Outside expertise
"I don’t think the Fed has seen anything like this," AIG executive Ernest Patrikis said. "AIG just got so complex in terms of private corporate matters that you just need that outside expertise." Patrikis is now with the law firm of White & Case in New York.
In addition to hiring consultants, the Fed and the Treasury have retained Wall Street firms to help manage more than $2 trillion in bailout and emergency-loan programs.
Pacific Investment Management runs a $259 billion program to backstop the commercial-paper market. BlackRock, Goldman Sachs Asset Management, Pimco and Wellington Management are managing the Fed’s purchases of up to $500 billion of mortgage-backed securities. JPMorgan Chase oversees a separate program under which the Fed may lend up to $540 billion to support mutual funds.
Last month, the House passed conditions for releasing the remaining $350 billion of financial-rescue funds, including a requirement that the Fed give details of the contracts and election process for the mortgage-backed securities purchase program’s managers.
BlackRock is also managing and selling assets acquired in the Fed’s $29 billion rescue of Bear Stearns, as well as securities called collateralized debt obligations the Fed purchased in the bailout of AIG, the largest U.S. insurer.
Such contracts show how the Fed’s in-house staff has been overwhelmed by new responsibilities that the central bank has taken on.
"Once the government starts getting into the business of restructuring companies, there are competency deficits," said Phillip Phan, professor of management at the Johns Hopkins Carey Business School. "It’s inevitable they’ll go back to Wall Street for advice."
Still, he said, "the man in the street would say, ’We’re paying to fix somebody else’s mistake by paying the very people who are part of the system that produced the mistake.’"
Quandary
Alabama Representative Spencer Bachus, the ranking Republican on the House Financial Services Committee, said the issue of hiring so many outsiders is a "major concern."
"It’s necessary with the magnitude of the intervention," Bachus said. "They lack the staff internally. But that comes with opportunity for conflicts of interest. It’s a quandary."
Before the government hired him, Huebner had advised JPMorgan in talks with the Fed, ultimately unsuccessful, about organizing a private rescue of AIG. Huebner has also advised Morgan Stanley, Credit Suisse and Bank of America on various transactions.
"It’s complicated stuff that lawyers inside the government wouldn’t do ordinarily, and the stakes are high enough you want really good ... counsel," said Stephen Cutler, JPMorgan’s general counsel and former enforcement chief at the Securities and Exchange Commission.
To be sure, the Fed hasn’t outsourced all day-to-day contacts with AIG. The New York Fed has observers at all AIG board and board committee meetings. Fed employees stationed inside AIG "monitor funding, cash flows, use of proceeds and progress in pursuing its global divestiture plan," the Fed reported to Congress in November.
Huebner balances his Fed and AIG work with the bankruptcy of Frontier Airlines and the Minneapolis Star Tribune newspaper. "I am expected to parachute into situations that, frequently, others have failed to figure out how to solve," Huebner said. "You need to decide where to operate and where to cauterize."
"There’s a stronger parallel than you would think," Huebner, a partner at Davis Polk & Wardwell, said in an interview. Helping resuscitate the insurance giant takes "a lot of the same qualities that I think stand you in very good stead with emergency medicine - the ability to remain calm in almost any situation, and the ability to assess, triage and treat, even in a crisis."
Huebner, 41, is part of an army of outside lawyers and consultants the Federal Reserve has called upon to help fight the biggest financial crisis in 70 years. While the central bank won’t disclose how much work it has outsourced, Fed watchers say the institution is relying on Wall Street experts to an unprecedented extent, seeking help from insiders in the very industries where the turmoil originated.
Outside expertise
"I don’t think the Fed has seen anything like this," AIG executive Ernest Patrikis said. "AIG just got so complex in terms of private corporate matters that you just need that outside expertise." Patrikis is now with the law firm of White & Case in New York.
In addition to hiring consultants, the Fed and the Treasury have retained Wall Street firms to help manage more than $2 trillion in bailout and emergency-loan programs.
Pacific Investment Management runs a $259 billion program to backstop the commercial-paper market. BlackRock, Goldman Sachs Asset Management, Pimco and Wellington Management are managing the Fed’s purchases of up to $500 billion of mortgage-backed securities. JPMorgan Chase oversees a separate program under which the Fed may lend up to $540 billion to support mutual funds.
Last month, the House passed conditions for releasing the remaining $350 billion of financial-rescue funds, including a requirement that the Fed give details of the contracts and election process for the mortgage-backed securities purchase program’s managers.
BlackRock is also managing and selling assets acquired in the Fed’s $29 billion rescue of Bear Stearns, as well as securities called collateralized debt obligations the Fed purchased in the bailout of AIG, the largest U.S. insurer.
Such contracts show how the Fed’s in-house staff has been overwhelmed by new responsibilities that the central bank has taken on.
"Once the government starts getting into the business of restructuring companies, there are competency deficits," said Phillip Phan, professor of management at the Johns Hopkins Carey Business School. "It’s inevitable they’ll go back to Wall Street for advice."
Still, he said, "the man in the street would say, ’We’re paying to fix somebody else’s mistake by paying the very people who are part of the system that produced the mistake.’"
Quandary
Alabama Representative Spencer Bachus, the ranking Republican on the House Financial Services Committee, said the issue of hiring so many outsiders is a "major concern."
"It’s necessary with the magnitude of the intervention," Bachus said. "They lack the staff internally. But that comes with opportunity for conflicts of interest. It’s a quandary."
Before the government hired him, Huebner had advised JPMorgan in talks with the Fed, ultimately unsuccessful, about organizing a private rescue of AIG. Huebner has also advised Morgan Stanley, Credit Suisse and Bank of America on various transactions.
"It’s complicated stuff that lawyers inside the government wouldn’t do ordinarily, and the stakes are high enough you want really good ... counsel," said Stephen Cutler, JPMorgan’s general counsel and former enforcement chief at the Securities and Exchange Commission.
To be sure, the Fed hasn’t outsourced all day-to-day contacts with AIG. The New York Fed has observers at all AIG board and board committee meetings. Fed employees stationed inside AIG "monitor funding, cash flows, use of proceeds and progress in pursuing its global divestiture plan," the Fed reported to Congress in November.
Huebner balances his Fed and AIG work with the bankruptcy of Frontier Airlines and the Minneapolis Star Tribune newspaper. "I am expected to parachute into situations that, frequently, others have failed to figure out how to solve," Huebner said. "You need to decide where to operate and where to cauterize."