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Last year, American International Group (AIG) lost up to $2 billion because its Financial Products group unwound most of its remaining trades with Goldman Sachs (GS). Of course, this was the situation that led to the insurer's near-collapse in September 2008. The losses sustained last year resulted from AIG's continued efforts to extract itself from a precarious financial situation. AIG's realized losses came on approximately $3 billion in mortgage-collateralized debt positions. After last year's extrication, AIG has $1.3 billion in CDOs with Goldman Sachs, because the company believed the positions could perform better than their current prices would reveal.
At the end of 2009, AIG's derivatives portfolio had a notional amount down 41% to $940.7 billion – off from $1.6 trillion a year earlier. The number of outstanding trades was trimmed from 18,900 to 16,100 during the same period.
AIG has indicated that it will continue to unwind its positions and will keep derivatives with a notional value of between $300 billion and $500 billion. But the Financial Products won't exist anymore, and either an external party or AIG will manage the derivative positions that are left.
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