American International Group Inc. said on Wednesday its subsidiary, AIG Financial Products (FP), had filed for Chapter 11 bankruptcy protection to complete the wind down of a business unit that was a central figure in the 2008 financial crisis.
AIG Financial Products largely ceased operations in 2008, and its bankruptcy will not have a material impact on AIG or on life and retirement insurer Corebridge Financial Inc, which AIG recently spun off, AIG said.
AIG Financial Products issued the credit default swaps that put AIG on the hook for billions of dollars in losses during the collapse of subprime mortgage markets, according to court documents filed in U.S. Bankruptcy Court in Wilmington, Delaware.
AIG’s losses on the credit default swaps ultimately led to $182.3 billion in federal bailouts for the company, which AIG repaid in 2012.
AIG Financial Products has no ongoing operations or employees of its own, but it maintained a small portfolio of financial products after largely shutting down in 2008. It owes more than $37 billion to its parent company AIG on loans related to the 2008 crash, according to court documents.
AIG has already taken a loss on the $37 billion intercompany debt, according to court documents.
The bankruptcy will allow AIG Financial Products to wind down its remaining portfolio and avoid the cost of defending lawsuits by employees whose deferred compensation programs were “wiped out” in the 2008 crash, according to court documents.
AIG Financial Products prevailed in litigation brought by a group of London-based employees, but it faced another wave of litigation by plaintiffs based in Connecticut, according to court documents.
