The headlines buried how AIG has more massive potential losses on their CDS portfolios.
According to AIG, the risk factor includes a super senior CDS portfolio with a net notional amount of $192.6 billion of AIG Financial Products Corp. and AIG Trading Group Inc. and their respective subsidiaries, collectively known as AIGFP, as of March 31, 2009. The portfolio represented derivatives written for financial institutions, principally in Europe, for the purpose of providing regulatory capital relief rather than for arbitrage purposes. The fair value of the derivative liability for these CDS transactions was $393 million at March 31, 2009.
If the credit markets continue to deteriorate, AIG may recognize unrealized market valuation losses in AIGFP's CDS portfolio in future periods which could have a material adverse effect on the company's consolidated financial condition or consolidated results of operations. Moreover, the period of time that AIGFP remains at risk for such deterioration could be significantly longer than anticipated, if AIGFP's expectations with respect to the termination of transactions in its regulatory capital portfolio do not materialize, AIG said in the filing.
Meanwhile India's biggest aluminum producer just got burned badly on derivatives, with a total loss of 80%.
Hindalco Industries Ltd., India’s biggest aluminum producer, reported an 80 percent decline in full-year profit because of waning demand, higher raw material costs and derivatives losses.
Now note this move, BNY Mellon makes minority investment in International Derivatives Clearing Group
The Bank of New York Mellon Corp. said Tuesday it has made a strategic minority investment in International Derivatives Clearing Group, an independently-operated NASDAQ OMX subsidiary.
IDCG serves as a designated clearing organization for clearing and settling interest rate swap contracts and other fixed income derivatives contracts. Financial details were not disclosed.
BNY Mellon (NYSE:BK), based in New York City, is Pittsburgh’s second largest bank according to deposits. It is a global financial services company focused on helping clients including institutions, corporations and high net worth individuals manage and service financial assets. BNY Mellon operates in 34 countries.
As part of the transaction, IDCG will utilize BNY Mellon’s securities servicing products, enabling both firms to better address current regulatory and infrastructure challenges.
“This strategic partnership with NASDAQ OMX provides our buy side and sell side clients with a flexible platform that meets their derivatives trading, clearing and servicing needs,” BNY Mellon President Gerald Hassell said in a statement.
NASDAQ OMX CEO Bob Greifeld said in a statement that the transaction “reduces credit risk in the large (over-the-counter) interest rate swap market” and “lends support to President Obama’s proposed reforms of the OTC derivatives market.”
I can't quote it but caught a little blurb on CNBC on how the derivatives market should grow and expand.