AIG, National City Face Probes By Regulators

AIG is facing an SEC investigation into how it accounted for its credit default swaps tied to subprime mortgages.  The investigation was more than likely triggered by the discovery in February of "material weakness" in AIG's accounting for these derivatives by auditors.  As an aside, I must take a moment to praise AIG's auditors for finding suspicious accounting before a company's bankruptcy announcement.  They really have come a long way since Enron.  AIG tried to defend its accounting by blaming the mispricings on "unpredictable markets" during the credit crunch.  But the auditors and the SEC seem to think the mispricings are related to "it'll all come back, so we'll just mark it here" syndrome, also known as "marking to whatever the hell I think it's worth" disorder, in addition to "we're AIG so we do whatever we want and then pay fines to settle charges" disease. A good friend of mine who is in the insurance industry told me once that he believed that AIG was run by a bunch of crooks.  This was back in 2005, when Maurice "Hank" Greenberg was booted out of the CEO post during AIG's last accounting scandal.  I believed my friend's assertion when I read that Hank Greenberg refused to share the fancy bathroom on his private jet with anyone other than his wife and his fluffy white Maltese dog named Snowball.  Clearly, that man had something to hide.  Apparently, the crookedness didn't disappear with Mr. Greenberg. 

In Midwestern regulatory investigation news, the Wall Street Journal has reported that National City has been put on probation by federal regulators.  NCC has entered into a confidential agreement with the Office of the Comptroller of the Currency at some point in the past month.  The confidential agreement will allow the bank to work with regulators to address its financial problems without "triggering alarm among depositors."  Perhaps some of those depositors may be alarmed now after they woke up this morning and read the Wall Street Journal's report.  The terms of the agreement weren't detailed, the report merely indicated that the OCC will urge the bank to maintain adequate capital and improve lending standards.  Apparently, a handful of other banks are operating under similar agreements or MOUs (memorandum of understanding.)  I'm not sure what this action means beyond assuming that lending standards will be tightened even further at banking institutions that are already suffering from the mortgage/commercial real estate/construction loan debacle.  If nothing else, having banking regulators hanging around the office and breathing down your neck all the time should make bank managers rethink ever allowing lending standards to drop as drastically as they did in the past few years.