After some years, leadership passed to Joseph Cassano, a tough, Brooklyn-born trader and Drexel veteran. Mr Cassano ran the business from London, where he lived in a grand town house a stone's throw from Harrods. Mr Cassano could not be reached. A neighbour, describing him as a “delightful person”, says he still lives there.
According to an AIG investor presentation in May last year, the “watershed” event for its financial unit came in 1998 when bankers from JPMorgan came to AIGFP and asked it to participate in what they called “bistro trades”. These were precursors to CDOs, the pools of mortgage-backed securities that were to wreak havoc on the global financial system years later .
In some respects, writing credit default swaps – insurance against bond default – was a natural extension for a company that prided itself in pricing difficult risks. AIG came to specialise in insuring holders of what it believed were the safest CDOs, known as “super-senior” tranches (see below). Backed by AIG's huge balance sheet and pristine credit rating, the London unit thrived. AIG insiders estimate that between 1987 and 2005, the unit netted more than $5bn in profits – a rich dividend for AIG and the AIGFP team, who shared a slice of the profits and had some of their own money at risk.