Two of the top managers at AIG's Paris unit have resigned, reports the Wall Street Journal, leaving the insurer scrambling to avoid potential defaults on $234 billion in derivative transactions. The complicated scenario results from a French law that says regulators must approve of the managers' replacements or else pick their own—which would constitute a "change in control" at AIG that could trigger the defaults.
Earlier this month, in the same briefing that detailed its $165 million in bonuses, AIG warned the Treasury about the complication in the Paris office. The two departing managers have both returned their bonuses and have agreed to stay on in a transitional capacity. While the defaults remain unlikely, they would not only hammer one of the few stable divisions of AIG but force European banks to raise billions in capital to soften the blow.