"AIG’s Liddy to Step Down Once Board Finds Replacement (Update5)
By Hugh Son, Erik Holm and Andrew Frye
May 21 (Bloomberg) -- American International Group Inc. Chairman and Chief Executive Officer Edward Liddy, who took over the insurer after it almost collapsed last year, told the board he plans to step down as soon as the directors replace him.
Liddy, 63, recommended the chairman and CEO roles be split, the insurer said today in a statement. AIG said separately that Harvard University Professor Martin Feldstein, James Orr and Morris Offit are stepping down from the board, making way for a new slate approved by trustees overseeing the government’s majority stake in the New York-based company.
Liddy’s replacement will be the fifth CEO since 2005 to run AIG, the world’s biggest insurer until losses on derivatives left it hours from bankruptcy in September. The new leader must find a way to sell assets, stem the exodus of customers and employees and repay the $182.5 billion U.S. bailout while enduring public scrutiny that made Liddy wonder aloud about potential damage to his reputation.
“It really is a terrible job, I’m not sure who would really want it,” said Robert Haines, analyst at CreditSights Inc. “There is so much political baggage that whoever takes over the company is going to find it an extremely difficult and thankless job.”
AIG’s restructuring chief, Paula Reynolds, may be a candidate for the top spot, said Haines. Other possible successors include Ace Ltd. CEO Evan Greenberg, the son of former AIG leader Maurice “Hank” Greenberg, Haines said. Ace sidestepped the subprime investments that overwhelmed AIG.
Liddy said in an interview the insurer has “very strong internal candidates” for CEO and he called Reynolds an “exceptional individual.”
Liddy was appointed in September by the government to run AIG after the company agreed to turn over a majority stake in return for a federal rescue. He then helped persuade the U.S. to expand the bailout three times and devised a plan to sell assets and repay the Treasury. Liddy has been separating units, including two non-U.S. 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.
“It is likely to take several years,” to turn around the insurer, Liddy said in the statement. “AIG should have a leadership team committed to a similar time horizon and prepared to carry the plan to completion.”
Liddy had been the CEO of Allstate Corp., the largest publicly traded U.S. 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 receiving U.S. bailout funds. The payments helped settle transactions including credit-default swaps backed by AIG. Goldman Sachs was the biggest recipient of AIG payments after the bailout, and lawmakers including Representative Elijah Cummings have said Liddy’s ownership of Goldman Sachs shares raised the appearance of a conflict of interest.
After AIG was rescued, banks that had bought credit-default 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. Congress demanded to know how U.S. bailout money was being spent and pressured AIG to name its counterparties. Goldman Sachs, Deutsche Bank AG and Societe Generale SA were among the largest recipients. The swaps protected the banks against losses on fixed-income holdings.
The latest bailout package includes an investment of as much as $70 billion, a $60 billion credit line and $52.5 billion to buy assets owned or backed by the insurer. The terms gave AIG more time to pay back loans because Liddy was unable to sell units as fast as initially planned.
AIG has disclosed deals to sell assets, including a U.S. auto insurer, an equipment guarantor and a Japanese tower, for about $5.6 billion since the September rescue.
Liddy came under fire from lawmakers in March and some called on him to quit because of AIG’s plan to give $165 million in retention pay to employees of the Financial Products unit, whose credit-default swap derivatives helped push the firm to the brink of bankruptcy. The bonus plan was created before Liddy became CEO, and he persuaded some recipients to return part of the awards.
The chief’s job paid only a dollar a year to Liddy, who came out of retirement to salvage the insurer. “My only stake is my reputation,” he wrote to Treasury Secretary Timothy Geithner in March.
Liddy “continued to lose the confidence of the U.S. Congress and of the American people,” Cummings said in an e- mailed statement. “It is critical that the new chairman and CEO of AIG be completely committed to transparency and accountability to ensure that the American people know what is happening with their money and when they will get it back.”
In today’s interview, Liddy called the AIG chief’s post “the most intellectually stimulating job” in the U.S. and said he expects to end his tenure with an “enhanced reputation.”
Geithner praised Liddy for his work.
“Mr. Liddy took one of the most challenging jobs in the American financial system,” Geithner said in a statement released today in Washington. “He shouldered this burden out of a strong sense of duty and patriotism.”
The job of finding a successor will fall on the new board of directors. AIG today nominated a slate of 11 board candidates that includes a majority selected by its outside overseers. The proposed board includes five new candidates chosen by the trustees managing the federal stake, plus Liddy.
Directors Virginia Rometty, Michael Sutton and Edmund Tse had previously told AIG they wouldn’t stand for re-election at this year’s annual meeting, scheduled for June 30. Tse, described by AIG as the “architect” of the firm’s global life insurance operations, has been with AIG for about 48 years.
The new candidates are Harvey Golub, Laurette Koellner, Christopher Lynch, Arthur Martinez, Steve Miller and Douglas Steenland. The trustees told Congress May 13 that they’d selected five executives to join the board and AIG would pick one. The names of all the new candidates except Koellner were reported that day.
Liddy had shaken up management at the insurer, appointing a new chief financial officer, investment chief, restructuring head and leader of non-U.S. life insurance.