Tweet
Hedge fund hotel yields up secrets
It is Mayfair's house of financial horrors. Owned by the Abu Dhabi royal family, One Curzon Street is among London's flashiest office blocks. But behind the elegant curves, polished white stone, sweeping windows and panoramic atrium lie billions of dollars in losses that have threatened the global financial system.
Popular with financial enterprises, the building is known as a hedge fund hotel. Its tenants include GLG Partners, one of the City's star funds, which has fallen on hard times, and the struggling Swiss bank UBS, but on the fifth floor can be found the most notorious of the property's troubled tenants - a formerly obscure financial products division of the sprawling American International Group (AIG).
It was in this London office of AIG that big-brained financial whiz-kids created a casino offshoot of the once-mighty insurer that spectacularly wrecked the company, racking up billions of dollars in losses on arcane derivatives, swaps and contracts. Fatally undermined by the unit's wheeler-dealing culture, AIG crashed to the US's biggest corporate loss of $61.7bn (£43bn) for the final quarter of 2008 and is limping along the brink of oblivion, saved from bankruptcy by an eye-watering $150bn of emergency aid from US taxpayers.
.
.
.
.
.
The Serious Fraud Office is examining exactly what type of business took place on the fifth floor of One Curzon Street, where a team of some 225 staff were managed by a policeman's son from New York, Joseph Cassano, who boasted a degree in politics from Brooklyn College and lived in a company flat behind Harrods. He was scorned by one California congresswoman, Jackie Speier, as "the golden boy of the casino in London".
The division dates back to 1987, when a small group of former traders from the junk bond firm Drexel Burnham Lambert persuaded AIG's then chairman, Hank Greenberg, that there was a highly lucrative opportunity in offering insurance that would protect banks against default on debt or against fluctuations in the value of derivatives.
AIG had a sought-after selling point: a triple-A credit rating. For a fee, it would stand behind lesser institutions' credit obligations. By lending its gilt-edged rating, it could give clients' investments a higher value and make them easier to trade. Headquartered in Connecticut but largely run from London, the division transacted billions in credit default swaps (CDS) - instruments trading financial risk - which have been dubbed "acts of Satan" by a leading US credit analyst, Christopher Whalen.
"These people were deluded," says Whalen, who views the CDS as a phenomenon dreamt up by those whose obsession with the free market has caused them to lose their grip on reality. "In a world where people believe in market efficiency, in total market completion, things like CDSs make sense. It goes back to Milton Friedman."
.
.
.
.
.
Popular with financial enterprises, the building is known as a hedge fund hotel. Its tenants include GLG Partners, one of the City's star funds, which has fallen on hard times, and the struggling Swiss bank UBS, but on the fifth floor can be found the most notorious of the property's troubled tenants - a formerly obscure financial products division of the sprawling American International Group (AIG).
It was in this London office of AIG that big-brained financial whiz-kids created a casino offshoot of the once-mighty insurer that spectacularly wrecked the company, racking up billions of dollars in losses on arcane derivatives, swaps and contracts. Fatally undermined by the unit's wheeler-dealing culture, AIG crashed to the US's biggest corporate loss of $61.7bn (£43bn) for the final quarter of 2008 and is limping along the brink of oblivion, saved from bankruptcy by an eye-watering $150bn of emergency aid from US taxpayers.
.
.
.
.
.
The Serious Fraud Office is examining exactly what type of business took place on the fifth floor of One Curzon Street, where a team of some 225 staff were managed by a policeman's son from New York, Joseph Cassano, who boasted a degree in politics from Brooklyn College and lived in a company flat behind Harrods. He was scorned by one California congresswoman, Jackie Speier, as "the golden boy of the casino in London".
The division dates back to 1987, when a small group of former traders from the junk bond firm Drexel Burnham Lambert persuaded AIG's then chairman, Hank Greenberg, that there was a highly lucrative opportunity in offering insurance that would protect banks against default on debt or against fluctuations in the value of derivatives.
AIG had a sought-after selling point: a triple-A credit rating. For a fee, it would stand behind lesser institutions' credit obligations. By lending its gilt-edged rating, it could give clients' investments a higher value and make them easier to trade. Headquartered in Connecticut but largely run from London, the division transacted billions in credit default swaps (CDS) - instruments trading financial risk - which have been dubbed "acts of Satan" by a leading US credit analyst, Christopher Whalen.
"These people were deluded," says Whalen, who views the CDS as a phenomenon dreamt up by those whose obsession with the free market has caused them to lose their grip on reality. "In a world where people believe in market efficiency, in total market completion, things like CDSs make sense. It goes back to Milton Friedman."
.
.
.
.
.