The Brad Pitts of the world couldn’t have unglued me from Bloomberg television and my computer since yesterday, watching every little blip of news regarding the debacle happening in Wall Street and thinking about the ramifications locally.
Unlike Lehman Brothers, it seems that American International Group (AIG) has friends in high places. So far, it has been allowed by regulators to raise another $20 billion by borrowing from its subsidiaries and no less than Federal Reserve officials have asked Goldman Sachs and JPMorgan Chase to set up a $75-billion facility to stave off a crisis at AIG.
Gov. David A. Paterson of New York said the magic words: “It’s a systemic risk.” Meaning he thinks if the government let’s AIG fail, this could shake the entire financial system. Having said that, the government has shown reluctance in bailing out any financial firm using public money, of course, so expect more creative means to help out financial companies in trouble.
All this brings to fore what will happen to those who bought Philamlife insurance policies and investments in Philam Asset Management Inc. (PAMI). I just got off the phone with PAMI president and chief executive officer Karen Liza Roa. Here’s the exact transcript:
MoneySmarts: How is PAMI affected by AIG’s troubles?
Karen Liza Roa: First of all, we must be very clear. It’s not the funds that are in trouble. It’s the fund manager’s parent company. We should all be very clear on that.
MoneySmarts: But what does that mean? That information will be going over everyone’s heads and eventually what they want to know is: Is our money safe?
Roa: Yes. Your money is safe. AIG is a different corporation. The assets of PAMI are with a third-party custodian which is Citibank. You are shareholders of the fund. The Board of Directors are separate and independent. The fund is a legal entity of its own. It will follow investment restrictions of the Securities and Exchange Commission and the Philippine’s Investment Company Act. Your money is not co-mingled with AIG. They do not capitalize our funds.
One example would be the GSIS mutual fund. That used to be managed by GSIS and then eventually by us. That’s an example that will show you the relationship between the fund and its fund manager.
MoneySmarts: Under Philippine laws, the mutual fund company is required to buy back shares at any time the investor wants to redeem the shares, right? So, it’s not like the money will disappear into thin air?
Roa: Yes, that’s what the law requires. The company will follow whatever restrictions are in the law. Besides, take a look at your investments. They are still in Philippine blue chips, they are in prime grade fixed income securities.
MoneySmarts: Thank you, Karen, for your time.
Translating all that: worst-case scenario, if AIG closes its doors, is that you get a new fund manager. Read the news article here. I also found Floyd Norris’ blog over at the New York Times particularly interesting.
I have been getting emails and inquiries on whether to pull out investments in PAMI. Here are the facts and the official statement. Investors, you’ll have to decide for yourselves.
I am reminded of how one successful banker handled a bank run years ago. He went to one particular branch in Makati City, displayed cash and served cookies and juice. Visibility and being calm saved the day. Let’s see how Philamlife handles this thing. Watch this space for more updates today.
37 Responses to “(UPDATE) Is AIG too big to fail? What will happen to investments in PAMI?”
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Pages: « 8 7 6 5 4 [3] 2 1 » Show All
September 16th, 2008 at 4:28 pm
@Salve
Great news gathering Salve and I’d like to thank you personally for the speedy updates.
I don’t know about hvrds but I think he’s the one panicking and adding fuel to the fire.
September 16th, 2008 at 4:20 pm
hvrds,
your advice to “hold positions and wait for the hurricane to pass over” was what the employees of Lehman exactly did, and now they’re laid off, no job, and all those compensation they received in the form of stock options are worth less than toilet paper.
In a financial storm, the best way to safeguard your assets is to convert it to something with tangible value (such as gold) or some thing with solid backing, such as treasury bonds (since governments are less likely to go bankrupt than corporations).
September 16th, 2008 at 3:48 pm
@hvrds, did you actually read through the entire post? what headline are you talking about? What tone of mine will make investors panic? My question on whether AIG is too big to fail and what will happen to PAMI investments? They are valid questions. And questions that every investor is asking now. But if you actually read through the blog post, it showed a very fair treatment of the company, even giving space to the fund managers. Do you think it would be fair for me NOT to write about them because investors shouldn’t believe them? That is not my decision to make. My job is to make that information available so that investors can make their own decisions whether or not to believe the company, so that investors may be informed on what they should do. No journalist will tell investors WHAT to do. They will ask the people involved the right questions, make that information available to readers and give readers a chance to know what the officials said. THEN the readers make their decisions. I am not in a position to say whether you should hold on to your investments or get out. As I said, I gather information so that you can decide what to do.
In your first comment, you said nobody should trust anybody but themselves, least of all the business editor which hosts this blog. Now, you are telling me to advise readers to stay put?? What gives?
September 16th, 2008 at 3:19 pm
Ms. Salve —– Looking at the meltdown of Enron, Global Crossing, Bear Sterns, Lehman.
All the heads of the above companies just before they fell all reassured investors that there was nothing to worry about.
Lehman just recently issued more preferred shares to raise capital.
John Thain formerly of Goldman saw the writing on the wall and immediately and went for the mantle of protection by merging with Bank of America.
Beneath all this is the fact that the government of the U.S. (FR)is now made sure that terms of credit support are made more liberal for Wall Street and commercial banks
Without that even the mighty Citi, BoA, JP Morgan would fall and this market correction would turn out to be the mother of all financial crashes in world history.
Billions of dollars have already been lost to 401k holder, pension funds and yes insurance companies.
For people in the Philippines who have investments in any financial instrument the proper advice in a period of extreme fear is simply to hold positions and wait for the hurricane to pass over.
That damn headline of the Inquirer plus your tone actually adds more fuel to the fire. Would you advice your readers to run out in the middle of signal no. 4 typhoon and say the sky is falling?
Your advice would be more circumspect and it would be stay put and wait for this to pass.
Do you think that would be prudent rather than a screaming headline to sell more papers?
Right now perception rules……
“In the meantime, prayer is in order: Now Lehman has been laid to sleep, I pray the Lord my stocks to keep.” Nicholas Von Hoffman…
September 16th, 2008 at 2:23 pm
regarding the question: will PAMI be affected if AIG fail. the short answer is NO. however, that answer rests on the assumption that only AIG will fail. if AIG’s collapse trigger a global financial crises, then PAMI will also be severly affected, and the assests that are still in Philippine blue chips and prime grade fixed income securities now won’t be so attractive and “prime grade” when global securities markets turn sour.