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Hank Greenberg Continues to Make Noise Over AIG's Strategy

Source: Forbes

Posted on 07 Jan 2009

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Maurice "Hank" Greenberg is hammering away at the U.S. government, trying to get it to abandon its plan to dismember American International Group (AIG), the insurer he once ran.

After questioning AIG's latest asset disposal on Tuesday, Greenberg told that the current plan to pare down the insurer and use the funds raised to pay down its government bets was the wrong idea at the wrong time. "It's not going to work," he said. "Selling assets in this market at this time is not a very clever strategy. AIG was the greatest insurance company in history, to sell those assets to competitors at these prices makes no sense."

Greenberg wants AIG to cease divestures and renegotiate its government bailout package, which he thinks was a raw deal. Whether he has a point is open to debate -- other companies that received federal assistance weren't necessarily threatening to bring down the world financial system without imminent aid -- but Washington has been inconsistent in the terms of its recent spate of private-sector aid.

"They're only in a pickle because they haven't negotiated the same terms that Citigroup got," he said. "Why did they first get a plan that had 14.0% interest? Was it to help some of the counterparties?" he said, citing Goldman Sachs, Morgan Stanley as two of the most significant companies that were involved in credit-market deals with AIG. Greenberg, who takes his nickname from a home-run-hitting Hall of Fame baseball player, was referring to the original bailout, which included an $85.0 billion loan at 8.5 percentage points above the London interbank offered rate, which at the time of the deal was 2.89%, plus a 2.0% commitment fee. The deal also gave the Federal Reserve ownership of most of the company, so, in effect, the high interest was money coming out of one government pocket and into another.

As AIG fire sales continue, Greenberg said, AIG's once-enviable position in the insurance business is quickly eroding. He said this is largely due to the exodus of its top people. On Monday, Joe Boren, chief executive of AIG's environmental division and a decades-long veteran jumped ship, while in December another insurance subsidiary, Lexington, lost its chief executive Kevin Kelley. "The problem is they are losing people by the day," Greenberg said. "There is uncertainty and they are nationalized. Who wants to work for a nationalized company?"

Earlier Tuesday, Greenberg filed with the U.S. Securities and Exchange Commission a copy of a letter to Chief Executive Edward Liddy of AIG, complaining that the firm is selling its HSB Group subsidiary for far too little. "Among other things, we would like to know what specifically did the board do to ensure that the company was sold for the highest available price," he wrote in the letter.

Last month, Munich Re arranged to buy HSB Group from AIG for $742.0 million. HSB is the parent company of the Hartford Steam Boiler Inspection and Insurance, which provides insurance and reinsurance on risks related to equipment malfunctions and engineering. Munich Re said the purchase fits with its strategy of U.S. expansion--plus, from its perspective, the price was right.

The problem is that everything that is being sold seems to be going for a song these days as companies fight to survive the credit crisis by selling some of their best assets to vulture investors who are in a position to pay rock-bottom prices. The pressure to sell is especially intense for American International Group, which has to sell some of its business units to help repay $150.0 billion in loans and other aid from the U.S. government, which now owns 79.9% of the firm. The insurance company teetered on the verge of bankruptcy in September as a result of its heavy exposure to soured credit default swaps and other financial products.