AIG's bitter breakup
The former chairman of AIG has launched a stinging attack on the men and women he sees responsible for destroying billions of dollars of shareholder value. The problem is, he's just as much at fault.
Hank Greenberg's letter to the board of American International Group offering to help the company out of its current predicament is not really an offer for assistance.
It is the latest in a series of barbs and attacks launched by the 82-year-old billionaire against the company he built up over a 35 year period into one of the world's largest insurers.
Greenberg has been attacking the board and management of AIG since he left the company in March 2005 amid allegations by the Securities and Exchange Commission of fraud and account rigging.
His latest ambush comes as the company is teetering on the brink of bankruptcy. It shares closed on the NYSE today at $US3.75, down 21 per cent, and have fallen another 40 per cent in after hours trading to $US2.29.
The overnight release of Greenberg's letter to AIG chairman and CEO Bob Willumstad was part of a two pronged attack on the company. Greenberg is a consummate corporate player who uses a team of heavy hitters including noted litigator David Boies, investment bankers Perella Weinberg Partners and high powered PR operative Howard Opinsky, a former press secretary to presidential candidate John McCain.
The coordinated move overnight included leaking the AIG letter to the Wall Street Journal and others and having an opinion piece by Greenberg about the fundamental strength of AIG's insurance published in The Financial Times.
It was capped off with an SEC filing by Greenberg's CV Starr revealing the possibility of acquiring assets from AIG, lending it money, seeking board seats, acquiring control through a proxy fight, launching a takeover offer, taking the company private in a buy-out or just offering strategic advice.
The "Dear Bob” letter started out by reassuring Willumstad that if AIG welcomed him back into the fold Greenberg would not "overshadow” his successor. "I remain ready to work with you to do everything possible,” he said.
The Greenberg letter highlighted the 90 per cent fall in the AIG share price over the past year and claimed that despite management reassurances about everything being under control "nothing is under control”.
Greenberg again repeats his offer to help before getting to the punchline: "Since you became chairman, you and the board have presided over the virtual destruction of shareholder value built up over 35 years.”
That does not sound like an application for a role as a trusted adviser. It is more likely to be the key message in campaign by Greenberg's CV Starr against AIG and its board. CV Starr competes directly with AIG in the insurance market.
The AIG board is too busy trying to secure the survival of the company to be too worried about Greenberg. It needs about $US20 billion to deal with the liabilities triggered by credit downgrades and probably another $US20 billion in equity to rebuild its capital.
But if it does survive there will be no shortage of ammunition available to be fired back at Greenberg.
It was under Greenberg that AIG turned to derivatives as an easy source of income. But the derivatives business, housed in the financial services division, was vulnerable to any erosion in capital strength. Even before Greenberg left in 2005, AIG was facing the risk of having to make collateral payments in the event of credit rating downgrades. Those collateral payments are currently about $US13.5 billion.
It was under Greenberg that AIG was hauled before the SEC for deficiencies in its accounting and forced to restate its financial statements for 2000, 2001, 2002, 2003 and 2004. A review of the company's accounts found "improper or inappropriate transactions” had occurred that were designed to impress financial markets.
One example of the transactions involved was a sham reinsurance transaction with General Re Corporation involving two tranches of $US250 million each. They were done to boost the accounts and there was no risk transfer.
The reinsurance scam was later the subject of a $US800 million settlement with the SEC in February 2006. The total cost to AIG of state and federal settlements for improper accounting, bid rigging and misuse of workers compensation was $US1.6 billion.
Greenberg, who has denied any wrongdoing and is fighting to clear his name in the US courts, may well be welcomed back by AIG shareholders but it is unlikely.
Fond memories of a $US100 stock price under Greenberg are not going to restore market value or rid the company of $US440 billion in credit default swaps.
The bigger question raised by Greenberg's attack on the company is what responsibility has been taken by the board for the situation the company finds itself in.
The AIG board has had some changes since Greenberg left in 2005. Seven directors have resigned and six new ones have been appointed including Willumstad. But the core ten directors around which the board is formed remain in place. It was these directors that were there when the accounting debacle was uncovered and the derivatives traders were given the green light to expand.
The longer Greenberg campaigns to get back on board at AIG and the more he reminds shareholders of the value that has been destroyed the more pressure will increase for a clean out of directors.
It is the latest in a series of barbs and attacks launched by the 82-year-old billionaire against the company he built up over a 35 year period into one of the world's largest insurers.
Greenberg has been attacking the board and management of AIG since he left the company in March 2005 amid allegations by the Securities and Exchange Commission of fraud and account rigging.
His latest ambush comes as the company is teetering on the brink of bankruptcy. It shares closed on the NYSE today at $US3.75, down 21 per cent, and have fallen another 40 per cent in after hours trading to $US2.29.
The overnight release of Greenberg's letter to AIG chairman and CEO Bob Willumstad was part of a two pronged attack on the company. Greenberg is a consummate corporate player who uses a team of heavy hitters including noted litigator David Boies, investment bankers Perella Weinberg Partners and high powered PR operative Howard Opinsky, a former press secretary to presidential candidate John McCain.
The coordinated move overnight included leaking the AIG letter to the Wall Street Journal and others and having an opinion piece by Greenberg about the fundamental strength of AIG's insurance published in The Financial Times.
It was capped off with an SEC filing by Greenberg's CV Starr revealing the possibility of acquiring assets from AIG, lending it money, seeking board seats, acquiring control through a proxy fight, launching a takeover offer, taking the company private in a buy-out or just offering strategic advice.
The "Dear Bob” letter started out by reassuring Willumstad that if AIG welcomed him back into the fold Greenberg would not "overshadow” his successor. "I remain ready to work with you to do everything possible,” he said.
The Greenberg letter highlighted the 90 per cent fall in the AIG share price over the past year and claimed that despite management reassurances about everything being under control "nothing is under control”.
Greenberg again repeats his offer to help before getting to the punchline: "Since you became chairman, you and the board have presided over the virtual destruction of shareholder value built up over 35 years.”
That does not sound like an application for a role as a trusted adviser. It is more likely to be the key message in campaign by Greenberg's CV Starr against AIG and its board. CV Starr competes directly with AIG in the insurance market.
The AIG board is too busy trying to secure the survival of the company to be too worried about Greenberg. It needs about $US20 billion to deal with the liabilities triggered by credit downgrades and probably another $US20 billion in equity to rebuild its capital.
But if it does survive there will be no shortage of ammunition available to be fired back at Greenberg.
It was under Greenberg that AIG turned to derivatives as an easy source of income. But the derivatives business, housed in the financial services division, was vulnerable to any erosion in capital strength. Even before Greenberg left in 2005, AIG was facing the risk of having to make collateral payments in the event of credit rating downgrades. Those collateral payments are currently about $US13.5 billion.
It was under Greenberg that AIG was hauled before the SEC for deficiencies in its accounting and forced to restate its financial statements for 2000, 2001, 2002, 2003 and 2004. A review of the company's accounts found "improper or inappropriate transactions” had occurred that were designed to impress financial markets.
One example of the transactions involved was a sham reinsurance transaction with General Re Corporation involving two tranches of $US250 million each. They were done to boost the accounts and there was no risk transfer.
The reinsurance scam was later the subject of a $US800 million settlement with the SEC in February 2006. The total cost to AIG of state and federal settlements for improper accounting, bid rigging and misuse of workers compensation was $US1.6 billion.
Greenberg, who has denied any wrongdoing and is fighting to clear his name in the US courts, may well be welcomed back by AIG shareholders but it is unlikely.
Fond memories of a $US100 stock price under Greenberg are not going to restore market value or rid the company of $US440 billion in credit default swaps.
The bigger question raised by Greenberg's attack on the company is what responsibility has been taken by the board for the situation the company finds itself in.
The AIG board has had some changes since Greenberg left in 2005. Seven directors have resigned and six new ones have been appointed including Willumstad. But the core ten directors around which the board is formed remain in place. It was these directors that were there when the accounting debacle was uncovered and the derivatives traders were given the green light to expand.
The longer Greenberg campaigns to get back on board at AIG and the more he reminds shareholders of the value that has been destroyed the more pressure will increase for a clean out of directors.
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