American International Group Inc, seeking its fifth leader since 2005, needs an executive who can solve a problem that stymied Edward Liddy: How to stem an exodus of customers and repay loans in a $182.5 billion US bailout while balancing the demands of Congress and the Treasury.
Whoever replaces the chief executive officer will also have to endure the public scrutiny that made Liddy wonder aloud about potential damage to his reputation. Liddy who is also chairman of the New York-based firm, said on Thursday he was stepping down from both roles as soon as the board can replace him.
Lawmakers including Representative Elijah Cummings grew frustrated with the costs to prop up AIG and the rescue funds that flowed to banks that did business with the insurer. The Treasury and Federal Reserve have said that AIG, the insurer of 100,000 companies, municipalities and retirement plans with ties to the world’s largest financial firms, is too big to fail.
“It is extremely important to get this right,” said Cummings, the Maryland Democrat who had lambasted Liddy over bonuses to staff at the unit that made bad bets on subprime mortgages. “The American people are getting sick and tired of seeing all of their money flow to the banks without them benefiting.”
Candidates for CEO may include some of the six new director nominees named on Thursday in AIG’s proxy statement, said Donald Light, an analyst at consulting firm Celent. “Boards have been known to pick successors from their own ranks, most especially when they have trouble finding an outside candidate,” he said.
At least five of the newcomers, including Delphi Corp Chairman Steve Miller and ex-Northwest Airlines CEO Douglas Steenland, have the approval of the trustees overseeing the government’s majority stake, and the panel considered turnaround experience in picking executives.
Also Read
Paula Reynolds, the AIG restructuring chief who led insurer Safeco Corp and arranged for the company’s sale last year to Liberty Mutual Group Inc for $6.2 billion, may be a candidate for CEO, said Robert Haines, an analyst at CreditSights Inc.
Liddy, 63, had signaled for several months to people close to AIG that he may step down and informed the board of his choice the night of May 20, according to two people familiar with the matter. Dennis Dammerman, a director, is being considered to run the search committee, said the people, who declined to be identified because the talks were private. Liddy waited until the new board nominees were announced before making his choice known, said one person.
The company has capable internal candidates and will also look outside, said Liddy, who asked that the chairman and CEO jobs be split after he steps down. He said that some executives will welcome the challenge, citing the ability of the trustees overseeing the US stake to find new directors.
“It really is a terrible job, I’m not sure who would really want it,” Haines said. “There is so much political baggage that whoever takes over the company is going to find it an extremely difficult and thankless job.”
Liddy said on Thursday in an interview that his position was “the most intellectually stimulating job in America,” involving “the largest restructuring probably ever done by any corporation.”
The US committed more than $200 billion to prop up more than 500 financial firms, including banks Citigroup Inc and Bank of America Corp and auto lender GMAC LLC. The government restricted compensation and dividends at firms getting aid, and Treasury Secretary Timothy Geithner has said regulators will consider the quality of leadership at such companies.
“Having the government involved — clearly that was a new thing for me,” Liddy said. “But if you think about what Citigroup is going through or Bank of America,” said Liddy, “I’m sure they’re going through the exact same thing.”
The new board candidates also include former American Express Co CEO Harvey Golub; Laurette Koellner, a director at Sara Lee Corp; Christopher Lynch, a retired partner at consulting firm KPMG International, and ex-Sears Roebuck & Co CEO Arthur Martinez.
Six AIG directors are stepping down in the board overhaul, including Martin Feldstein, a former head of the National Bureau of Economic Research, who has been an AIG director since 1987. Also leaving is Edmund Tse, described by AIG as the “architect” of the firm’s global life insurance operations.
Liddy, appointed in September by the US after the insurer agreed to turn over a majority stake in exchange for a federal rescue, secured three more bailouts after he was unable to sell assets fast enough to repay the original loan.
AIG has disclosed deals to sell assets, including a US auto insurer, an equipment guarantor and a Japanese tower, for about $5.6 billion since the September rescue. The federal bailout includes an investment of as much as $70 billion, a $60 billion credit line and $52.5 billion to buy mortgage-linked assets owned or backed by the insurer.
Liddy has been separating units, including two non-US life insurers and the property-casualty business, to prepare the operations for public offerings and avoid what he said was the taint of the AIG name.
Liddy was previously the CEO of Allstate Corp, the largest publicly traded US home and auto insurer. He was appointed to AIG by then-Treasury Secretary Henry Paulson, who was CEO of Goldman Sachs Group Inc when Liddy served on the board of the New York-based securities firm.
AIG paid Goldman Sachs $12.9 billion after the insurer was rescued. The payments helped settle transactions including credit-default swaps sold by AIG. Goldman Sachs was the biggest recipient of AIG payments after the bailout, and lawmakers including Cummings have said Liddy’s ownership of Goldman Sachs shares raised the appearance of a conflict.
After AIG was rescued, banks that bought swaps from the insurer got $22.4 billion in collateral and $27.1 billion in payments to retire the contracts, the insurer said in March, under pressure from Congress to name counterparties. Deutsche Bank AG and Societe Generale SA were also among the largest recipients. The swaps protected the banks against losses on fixed-income holdings.
The chief’s job paid $1 a year to Liddy, who came out of retirement to salvage the insurer. “My only stake is my reputation,” he wrote to Geithner in March.
AIG’s life and retirement services division said first- quarter operating profit dropped by more than half to $1.2 billion on falling sales of new policies. Premiums and other considerations fell by 11 per cent to $8.3 billion on customer cancellations of contracts, known as surrenders.
“There is a clear correlation between increased surrenders and negative AIG publicity,” Jay Wintrob, head of AIG’s retirement services division, said this month in a conference call.
Some banks and brokers stopped selling AIG products in September and the insurer is still suspended at firms that made up more than a third of annuity sales, Wintrob said.
AIG was run for more than three decades by Maurice “Hank” Greenberg, who stepped down in 2005. Martin Sullivan held the top post for three years and was forced out after saying losses tied to home loans would be “manageable.” Robert Willumstad was CEO for about three months before Liddy was appointed.