Monday, March 2, 2009

AIG’s Liddy Says Greenberg Responsible for Losses

American International Group Inc. Chief Executive Officer Edward Liddy said ex-CEO Maurice “Hank” Greenberg, credited with building the company into the largest insurer, was partially to blame for the firm’s woes.

“I think he’s responsible” for some of the insurer’s struggles, Liddy said today in an interview. “The formation of the AIGFP unit, which has literally brought us to our knees, that happened on his watch. The compensation systems that have gone astray, happened on his watch. I don’t think it’s as clean and simple as sometimes Hank would like to portray.”

Greenberg was at the helm during the formation of AIG’s financial products unit, which sold derivatives that cost the company more than $30 billion in writedowns and prompted a government rescue, Liddy, 63, said today on Bloomberg Television. New York-based AIG today reported the biggest loss by a publicly traded U.S. firm and announced that it reached an agreement to restructure its federal bailout.

Greenberg, who led AIG for almost 40 years before being forced to retire in 2005, has said Liddy is not equipped to run the company and called the sale of the firm’s insurance units to repay the government a “tragedy.” Greenberg told Congress last year that risk controls he put in place were weakened or eliminated after he left.

Liddy, the former CEO of home and auto insurer Allstate Corp., was appointed in September to run AIG after the insurer agreed to turn over an 80 percent stake to the government in exchange for an $85 billion loan.

Greenberg’s Response

The financial products unit was profitable until after Greenberg left, his spokeswoman, Liz Bowyer, said in a statement today.

The losses “never would have happened - and in fact did not happen,” while Greenberg was in charge, Bowyer said. “Under Mr. Greenberg’s leadership, AIG grew from a modest enterprise into the largest and most successful insurance company in the world. Its market capitalization increased approximately 40,000 percent between 1969, when AIG went public, and 2004, Mr. Greenberg’s last full year as chairman and CEO.”

AIG was unchanged at 42 cents in New York Stock Exchange composite trading at 4:15 p.m. after the U.S. committed as much as $30 billion in additional capital. The insurer, which posted a fourth-quarter loss of $61.7 billion, has plunged 99 percent in the past 12 months.

Credit Guarantees

The financial products unit was founded in 1987 by ex- employees of Drexel Burnham Lambert, the securities firm that helped popularize “junk-bond” investing. It was headed by Joseph Cassano, who built the business into one that provided guarantees on more than $500 billion of assets at the end of 2007, including $61.4 billion in securities tied to subprime mortgages.

Cassano stepped down in March 2008, agreeing to stay on as a consultant earning $1 million a month until U.S. lawmakers lambasted the arrangement in October.

Liddy was appointed by the U.S. to run AIG after it needed an $85 billion federal loan to stave off bankruptcy in September. He is AIG’s third CEO since Greenberg, who was forced to retire four years ago amid state and federal probes into accounting and sales practices.

Greenberg denies any wrongdoing in a New York State civil lawsuit filed against him in May 2005, which is still pending. Then-New York Attorney General Eliot Spitzer dropped portions of the lawsuit in 2006 that included four other allegations tied to the investigation.

Greenberg still controlled the largest stake of AIG shares before the government takeover through personal holdings and investment firms C.V. Starr & Co. and Starr International Co.

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