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 17th, 2008 at 9:43 am
Salve, minor correction here… Insurance Commission can only comment on Philam Life Insurance Co. Pre-need is under SEC and, unfortunately, their track record isnt as rock-solid as IC. We can reserve the word “safe” to Philamlife and PAMI. As for the rest more due diligence is needed.
September 17th, 2008 at 8:14 am
mocs, your two questions has had a lot of people stumped too! It’s anybody’s guess, IMO.
September 17th, 2008 at 8:12 am
Serious Nuts, still working on that. All that we have so far is the statement from president and ceo Joey Cuisia and Insurance Commission that Philam is well capitalized enough to service any claims from its clients — and that includes insurance and pre-need. Thanks
September 17th, 2008 at 8:10 am
@boknoi, Roa speaks only for PAMI, as discussed in the article. That refers to mutual fund investments in Philam-managed funds. I am still getting insiders, regulators and other industry insiders to talk about what this all means for insurance, pre-need and other policies currently in force. Keep watching this space
September 17th, 2008 at 7:26 am
i posted this on a different forum thread, but this is also applicable here. just sharing some thoughts…
the real troubling fact is not that Lehman had collapsed or that AIG is on the brink. the real trouble will start to emerge when the creditors start to assess the carnage and what these will cost them.
remember that Lehman is an investment bank, and that at the time of collapse, its debt stood at more than $600 BILLION. now, this means quite a few of global banks are looking at their combined $600 billion as possibly going down the drain.
the fallout from AIG should it collapse will be even worse, since it is the world’s largest insurance company.
insurance companies are such that they guarantee assets far larger than what they have themselves, and so when they collapse, or even have their credibility questioned, the assets that they back are also affected.
we are all in a serious situation, and there is no place for sugar-coating here. let us not get crippled by fear, but let’s also not hide under a rock and hope everything will be the same when we emerge.