AIG Dodges Publicity Bullet
American International Group reaffirmed the faith showed to it by the federal government by not biting the hand that saved it.
That wily Hank Greenberg. One can always count on him to be in the headlines. The legendary ex-CEO of AIG recently initiated a suit against the federal government claiming that $183 billion dollar bailout of AIG in 2008 was detrimental to shareholders (of which he was the largest) by levying an excessive interest rate on the initial loan amount. In the alternative, if the loan was not proffered, he would have been the largest shareholder of a bankrupt organization.
When a multi-international insurer allows a division responsible for less than 10% of the gross revenue of the organization to engage in credit default swaps, bringing it to the edge of oblivion, one is not in a leveraged position when it comes to demanding lower loan rates the Fed is offering while it extends billions of dollars to prop you up. Say what he might about his successor Martin Sullivan being responsible for a rogue internal group bringing AIG to its knees, Hank knows that the division was started and initially flourished during his own reign as CEO.
Many argued at the time that the discipline of market failure should be allowed to take its course, and the publicly traded companies that were unable to meet their financial obligations should be allowed to fail. Other companies, more expertly led, would rush into the gap to fill the needs created by the failed organizations. Others worried about a collapse of the world financial markets if multi-billion dollar companies (such as AIG) were allowed to go into dissolution.
Whatever side you are on, I think we can all agree that AIG's decision not to join Hank Greenberg's suit against the government was the correct call. It would have been mind boggling to fathom the corporate hypocrisy of an insurance company being bailed out by American taxpayer money, and consequently suing the government over the terms of the bailout. There is simply no way to polish the enormous turd that would have made in the headlines.
Of course that the course of action was merely considered has led to vociferous criticism by the body public. The scathing and scatological comments already made would have simply been prologue to a much more vitriolic diatribe that would have been far from fugacious. From a point of morbid curiosity, I would have liked to witness the splenetic outpourings that would have materialized had AIG's Board of Directors voted to join Greenberg's legal action.
AIG claims that they had to at least consider joining with Greenberg on the suit against the government as a review of that action and AIG's possible place in it as a co-plaintiff constituted its non-delegable legal and fiduciary duty to stockholders. That may be so, but it was the last thing the public wanted to hear.
Fortunately, the AIG Board was acutely aware of the publicity tsunami that would have engulfed AIG as a result of being a party to the suit. Just when the company is finally back on reasonably firm financial footing, no longer is owned by the federal government, and is running a series of TV commercials thanking John Q. Public for the bailout, they would have been dealing with a public relations disaster of unprecedented portions had they made AIG a party to the action. At that point the collective response of the nation would have been something along the lines of “osculate my buttocks,” but much more acidic.
The US Treasury divested itself of the final tranche of AIG stock last month. The government claims not only did it recover all of its money, but realized almost a $23 billion dollar profit on top of the return of the loan principal. Although the math appears to me to be a bit shaky for myriad reasons I won't expatiate upon here, the salutary news is that AIG is back on its own two feet (and the government is back to spending billions on other debatable programs).
Now let us hope that AIG keeps its focus on its core insurance operations and remaining financially viable so there are no further emergency bailouts necessary in the future. In the meantime, deciding not to sue the government was an inspired choice.
About the Author:
John D'Alusio has over 30 years experience in P/C insurance with executive management positions in administration, field operations, and claim technical areas. Mr. D'Alusio has had many articles published in industry periodicals, and is also a contributing author to the LexisNexis published, “Complete Guide to Medicare Secondary Payer Compliance.” He writes a monthly column for Risk & Insurance Magazine and is a quarterly columnist for AMComp Magazine.
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