AIG’s Title as World’s Largest Insurer Gone Forever

April 29, 2009

American International Group Chief Executive Edward Liddy is inching toward several more asset sales, has plans for a trio of initial public offerings, and expects the financial products unit to be a much smaller problem by year-end.

Unlike the growth targets set by most corporate bosses, Liddy is measuring success by how quickly he can shrink what was once the world’s biggest insurance company.

“AIG will never again be the world’s largest insurer,” he told Reuters in an interview on Wednesday. “Pretty soon you will have a much smaller AIG. And what is left will look a whole lot different than it does today.”

Liddy, 63, was installed as AIG CEO — at an annual salary of $1 — by the U.S. Treasury last September after the government took an 80 percent stake in the company in exchange for billions of dollars in financial support.

To be sure, Liddy isn’t yet ready to turn out the office lights and head home to Chicago. But nearly eight months after taking the unenviable job of keeping AIG alive long enough to pay back $80 billion in taxpayer debt, he is getting closer.

“We have a plan to repay taxpayers, it is a good plan, and it is working,” he said.

To be sure, being majority-owned by U.S. taxpayers can complicate decision-making. “We do not do anything without vetting it with the Federal Reserve,” said Liddy.

On any given day, as many as 40 Fed representatives are roaming AIG’s offices. “There are a lot of cooks in the kitchen,” he said.

Taking billions of dollars from taxpayers has also thrown up obstacles for AIG workers. A “rigorous expense policy” has ben instituted, there is no longer an entertainment budget to use to woo clients, and performance bonuses have been eliminated, Liddy said.

A severe slump in AIG’s share price has also hurt. “A lot of people have lost their financial vitality,” he said.

On the surface, there appears little reason for AIG employees to stay. Indeed, the insurer has suffered some high-profile departures. Liddy tells those who remain there is light at the end of the tunnel.

“There is promise,” he said, in sticking with units that are sold or spun off.

Next on the agenda, he said, are sales of an asset management business and an aircraft lessor, with second-round bids for both units currently being reviewed.

Together, sales of those businesses are expected to bring in more than $5 billion. AIG has already reached agreements for a dozen other asset sales, raising about $4 billion.

Bigger-ticket sales haven’t found buyers, however, with the credit crisis shrinking financing options. Instead, Liddy plans to pursue public offerings of several prized businesses, as early as the first quarter of 2010.

First up may be AIG’s global property-casualty arm, recently renamed AIU Holdings. Liddy is also considering selling shares of two international life businesses, Alico and AIA, to the public.

An initial public offering of AIU alone could raise between $38 billion and $58 billion, depending on market conditions, according to Bernstein Research analyst Todd Bault.

In the meantime, AIG may still sell all or parts of these businesses to private parties if buyers emerge, said Liddy.

Home Sweet Chicago

Liddy retired as chairman of insurer Allstate last year and was enjoying more time with his wife, three children and five grandchildren. He still held corporate directorships, including with Goldman Sachs, but had no plans to return to the business world full-time.

“Chicago is the center of our world,” said Liddy, who is expecting his sixth grandchild soon.

Things changed, rapidly, on Sept. 16. With only a few hours’ notice, Liddy was transplanted to New York to assume leadership of AIG.

He was the third man to hold the job in as many months, installed by the Treasury after it put up an $85 billion loan to keep AIG from crumbling under mounting mortgage losses from bets taken by its financial products unit, which is blamed for much of the company’s distress.

Liddy’s wife and family stayed behind in Illinois, where he makes occasional weekend visits.

The AIG job hasn’t been a picnic. He is leading 116,000 employees who fear for their jobs. Then there were death threats and heckling protesters following million of dollars of bonuses paid to workers in the financial products unit, which AIG is currently winding down.

Still, Liddy has no regrets.

“In the midst of a crisis, you can be a critic or get in the game,” he said. He sees accepting the job at AIG as “serving America.”

And it won’t be forever. “I didn’t sign on to be here for the next five years,” he said. “There is a natural inflection point. I’ll know when that is, and that will be the time to go.” (Reporting by Lilla Zuill; editing by John Wallace)

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