CEO of AIG, Martin Sullivan

Laying the Blame at AIG: Get Your Scorecard Ready

June 12, 2008 04:36 PM
by Anne Szustek
Amid steep losses and weakened credit ratings, Martin Sullivan, CEO of American International Group, the world’s largest insurer, becomes the latest target in an ugly public spat.

30-Second Summary

Eli Broad, billionaire philanthropist and former director of current AIG subsidiary Sun America, along with fund managers Bill Miller and Shelby Davis, who together control 100 million shares—or 4 percent—of AIG, sent the insurance conglomerate a letter Thursday demanding that CEO Martin Sullivan be swapped out with a stand-in chair selected from AIG’s board while a search is launched for a permanent replacement.

This follows the revelations reported in Monday’s Wall Street Journal that, on May 12, two days before AIG’s annual shareholder meeting, those three major shareholders sent a letter to its board of directors that assailed AIG’s financial practices, saying that the company had experienced a “staggering breakdown of risk controls and an unequivocal loss of investor confidence.”

Current AIG chair Robert Willumstad and director Morris Offit met with the three shareholders. Willumstad said of AIG’s market performance, “You’re not telling us anything we don’t know.”

For the moment it appears that AIG’s board is supporting Sullivan, who replaced Maurice “Hank” Greenberg as CEO in 2005. But Thursday’s letter is merely the latest of Sullivan’s woes. The Securities and Exchange Commission is examining whether AIG adequately marked down the value of credit-default swaps, a financial tool that buffers the effects of the sub-prime mortgage crisis on bondholders.

Under Sullivan’s tenure, AIG made $14 billion in profits in 2006. However, in the past two financial quarters, the company has announced $13 billion in losses and $20 billion in write-downs, prompting a need for capital injections—$20.3 billion worth.

But despite the influx of capital, Citigroup analyst Joshua Shanker wrote in a May 27 report that the billions put in may not be enough to keep AIG’s credit rating, already downgraded last month, from slumping further.

Greenberg, who was pushed out as CEO three years ago, remains a significant shareholder in the company and has also fiercely criticized its practices. However, Greenberg himself continues to be under fire. Three weeks ago, the SEC gave him a Wells notice—essentially a warning of a pending indictment—for possible accounting impropriety in dealings between AIG and General Re, a reinsurer owned by Warren Buffett’s conglomerate, Berkshire Hathaway. The transaction in question resulted in an extra $500 million appearing on AIG’s balance sheets.

Headline Links: Major AIG shareholders protest; SEC launches accounting probe

Video: ‘AIG’s Executive Storm’

Background: CEO Hank Greenberg’s ouster

Reactions: Lawyers for AIG board, Greenberg battle in The Wall Street Journal

Opinion & Analysis: ‘Reasons for Greenberg’s AIG Ouster Debated’

Historical Context: AIG-GenRe investigation

Related Topic: GenRe securities fraud ruling

Key Players: Hank, Jeffrey and Evan Greenberg


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