- And today The Mail on Sunday can reveal that the dealings that brought it to the edge of collapse were done in London.
Last week, AIG was effectively nationalised with an £48bn loan from the US Federal Reserve to avert a collapse that would have triggered unimaginable consequences on the world's financial markets.
In March, when the losses were revealed, Mr Cassano, a 53-year-old New Yorker who had an office in Mayfair, left the company. Asked by The Mail on Sunday if he felt responsible for the AIG crisis, he smiled and said: 'I left there six months ago.'
Refusing to answer further questions, he went inside his four-storey townhouse in one of London's most exclusive streets.
- Mr Cassano, who learned his craft on Wall Street, was one of the founding team in 1987 of AIG Financial Products. Effectively the insurer's banking unit, it sold cover to financial speculators, many involved in the American housing market.
Two decades on, Mr Cassano is one of several AIG executives facing a lawsuit accusing them of deceiving hundreds of thousands of investors who suffered huge losses in the latest crash on Wall Street. According to papers filed in New York's federal court,
- he claimed the policies he marketed were so safe they would never lose as much as 'one dollar'.
His pitch was so convincing that many small investors sank substantial sums of their life savings into AIG shares.
A financial expert told The Mail on Sunday: 'I'm not going to call Cassano a crook but he was the head of the division that took AIG down. If the US government had not stepped in, and AIG had gone bankrupt, the knock-on effect at institutions around the world would have been disastrous.
- 'As it is, Cassano's exotic financial dealings are the biggest single component of the crisis on Wall Street and in the City.'
Cassano moved to England in 1987 from the US but still owns a house in Westport, Connecticut. His division AIG FP sold credit default swaps (CDSs), which are, in effect, a type of insurance against an organisation going bust. AIG FP wrote CDS contracts with a range of investment banks and other financial groups. A CDS is linked to a specific type of asset, typically a company bond or other loan or package of loans. The buyer of the CDS pays a regular sum to the issuer. In return, if there is a default on the asset the issuer pays out a predetermined amount of money.
London has seen a boom in the credit derivatives market over the past ten years because of a combination of the
- UK's relaxed regulatory environment and a concentration of people skilled in this type of complicated trading.
During the credit explosion the CDS demand was huge. By 2007 Cassano's division was providing guarantees mainly
- through credit default swaps
on about $ 500bn of assets (£285bn).
In effect Cassano's business was underwriting a huge proportion of the global credit bubble -including the vast American subprime mortgage market. And as house prices in the US fell, the AIG books began to unravel. In December 2007, Martin Sullivan, chief executive of the whole of AIG, assured shareholders that the chances of the US housing bust leading to losses at AIG was 'close to zero'. But he confirmed AIG Financial Products had written off $1.1bn (£600m) because of its credit contracts covering American mortgages.
- The bombshell came on February 11. PricewaterhouseCoopers, auditors to AIG, said there had been 'material weaknesses' in the standards of financial reporting at Cassano's division. Worse was to come. On February 29, AIG announced it was writing off $11.1bn (£ 5.5bn) on its CDS business.
Troops' fears over their life cover in war zone
By Jonathan Petre, Mail on Sunday British soldiers have expressed alarm that a scheme to insure them on the battlefield could have been put in serious jeopardy if the US insurance giant AIG had collapsed last week.
- Most members of the armed forces top up inadequate Government compensation by joining the recommended private scheme PAX, which is underwritten by AIG.
Soldiers fighting in Iraq or Afghanistan tend to take out the maximum cover possible to double the money that will be paid out to them if they are wounded, or to their families if they are killed.
- With high casualty rates --almost 200 servicemen or women have been killed in the two conflicts - manyms of pounds have already been claimed.
The British arm of AIG that operates PAX insisted yesterday it would have been able to meet its obligations if its troubled parent company had folded.
But at the height of the crisis, servicemen and women were expressing their fears on unofficial websites.
One anonymous posting on the British Army Rumour Service website was headed
- Are Our PAX Policies In Safe Hands? It read:
- 'PAX is underwritten by AIG. Looking at this, I'm not sure they have much of a future. Just have to keep breathing then.'
The Ministry of Defence admitted yesterday that it had been so concerned about the situation it had sought assurances the scheme would continue if AIG collapsed. "...
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