AIG's Liddy Says He'll Leave Post With Reputation 'Enhanced'
By Hugh Son and Erik Holm
May 22, 2009
May 22 (Bloomberg) -- Edward Liddy, who earned $1 as chief executive officer of American International Group Inc., once told U.S. Treasury Secretary Timothy Geithner the only thing he had at stake as head of the firm was his reputation. He said yesterday he's leaving the post with that reputation enhanced.
Liddy was vilified by Congress and criticized by ex-CEO Maurice "Hank" Greenberg after stepping into the job in September at the request of Geithner's predecessor, Henry Paulson. He became CEO when the company agreed to turn over a majority stake in exchange for a federal rescue after credit markets froze and Lehman Brothers Holdings Inc. collapsed.
Liddy oversaw the beginning of the effort to repay the government by selling assets, including a U.S. business insurer and a unit the sells car coverage on the Internet. When Liddy, 63, failed to find buyers as quickly as expected, he helped persuade the U.S. to expand the bailout three times. The firm announced yesterday that he would step down when AIG found two people to replace him -- a CEO and a chairman.
"What I will get out of this is, hopefully, an enhanced reputation and a feeling like I stepped in at an incredibly vulnerable time for our country and provided some stability," Liddy said in an interview. "It's easy to forget just how awful the situation was in September."
Congressman Elijah Cummings called for Liddy's resignation one month after he took over, when a U.S. House committee learned the firm had rewarded insurance agents who sold AIG policies with a $440,000 trip to a California resort less than a week after winning its first government bailout. Criticism intensified over bonuses to employees of the Financial Products unit that brought the firm to the brink of bankruptcy.
The firm in March gave $165 million in retention pay to keep Financial Products employees involved in unwinding derivative transactions AIG had entered into before the bailout.
Liddy was called before Congress to explain the spending, and reminded legislators he came out of retirement to run the firm because he felt he owed it to his country. The insurer resisted efforts by lawmakers seeking information about firms that benefited from the U.S. funds directed to AIG.
"There's an awful lot of cooks in the kitchen," said Liddy, the former CEO of home and auto insurer Allstate Corp. "Right now, I have a lot of bosses. I have our board of directors, and I have trustees and the Federal Reserve and the United States Treasury and the administration and Congress and 450 regulators. That's a rough juggling act."
Under pressure from Congress, the insurer announced in March that Goldman Sachs Group Inc., Deutsche Bank AG and Societe Generale SA were among the largest recipients of funds from the insurer after the bailout. The banks were AIG's counterparties on credit-default swaps, contracts to protect them from losses on fixed-income holdings.
Cummings said Liddy's ownership of Goldman Sachs shares raised the appearance of a conflict. The Maryland Democrat said yesterday Liddy didn't want to manage AIG as if it were accountable to the government.
"He tried to operate in a Wall Street culture when in fact the company was owned by Main Street," said Cummings. "He just never got it."
Liddy had to request more funds after initially saying the first rescue was "enough." The latest package, including an investment of as much as $70 billion, a $60 billion credit line and $52.5 billion to buy mortgage-backed assets owned or backed by the insurer, became necessary in March after declines on securities tied to real estate and corporate debt depleted capital.
AIG in March posted a $61.7 billion fourth-quarter loss, the worst in U.S. corporate history.
AIG has disclosed deals to sell assets, including a Japanese office tower and stakes in businesses in Brazil, Canada, and Germany, for about $5.6 billion since the September rescue. Greenberg, Sullivan's predecessor, said it was "dumb" to sell the office tower, AIG's Tokyo headquarters building.
Liddy told Congress last week that by selling more units and holding stock offerings for businesses, the company can pay back a $40 billion stock investment and more than $40 billion in loans from the credit line within five years. Liddy said the insurer may need more time if markets worsen.
Geithner praised Liddy for taking the AIG role, which came with a $1 annual salary.
"He shouldered this burden out of a strong sense of duty and patriotism," Geithner said.
Liddy called his eight-month tenure as CEO "the most intellectually stimulating job in America," and predicted the firm's directors wouldn't have trouble finding a replacement. Whoever follows him, Liddy said, should earn more for the work than he did, based on the insurer's size and complexity.
"You're not going to get someone to do it for a dollar a year," he said.
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