AIG’s Top Executive Threatens to Quit, Recants Over Executive Pay
Nov. 16, 2009 — Barely a month after receiving approval for an executive compensation package valued at up to $10.5 million per year, the newest chief executive officer of taxpayer-rescued American International Group (AIG) last week threatened to quit and later recanted over potential federal limitations on executive pay at firms rescued by U.S. taxpayers.
Robert H. Benmosche, AIG’s current chief executive and formerly the top executive at MetLife, last week reportedly threatened to resign his new position after President Barack Obama’s “Pay Czar,” Kenneth Feinberg, said he would limit executive compensation at corporations that accepted funds through the $700 billion federal Troubled Asset Relief Program (TARP), which was created last year during the economic meltdown and designed to relieve ailing corporations of their toxic assets, such as mortgage-backed securities, which were dragging them down into bankruptcy.
The Wall Street Journal last week reported Benmosche might step down after the AIG chief executive informed AIG’s board of directors he would resign from the position he accepted in August in light of executive compensation limitations recently announced by federal officials and after Feinberg had approved Benmosche’s $10.5 million pay package.
Benmosche reportedly cited potential problems retaining top executives with federally limited pay amounts when telling AIG’s board of directors he would resign last week, according to the Wall Street Journal, which cited anonymous sources. Benmosche allegedly clarified his comments later, telling board members he intends to stay on at AIG and telling employees he would “fight” on their behalf while continuing to work with Feinberg.
Feinberg in October ordered an average 50 percent pay cut for the top 25 executives at AIG and six other corporations that accepted taxpayer funds through the federal TARP program. Another decision is coming regarding the next 75-highest paid positions at the same seven firms.
Although Feinberg’s decision only applies to the remainder of 2009, executives at affected companies anticipate he will base 2010 compensation levels on the same criteria. Proponents say the scaled-back compensation amounts are justified for firms that would be bankrupt but for taxpayer intervention. But opponents say the reduced pay levels only punish people not responsible for current company woes and make it harder for struggling firms to get back on their feet and retain critical staff capable of finding jobs elsewhere – as well as make it more difficult for firms to repay their respective debts to U.S. taxpayers.
AIG officials last year accepted what has become a nearly $183 billion, taxpayer-funded federal rescue package after what formerly was the world’s largest insurer became its most indebted on bad bets tied to various mortgage markets. Federal officials approved the bailout funds for AIG and other firms to stave off what they claimed would be a devastating domino effect on global financial markets.
Taxpayer-Rescued AIG Posts $455 Million 3rd Quarter Profit
Nov. 6, 2009 – Officials for heavily indebted American International Group (AIG) posted consecutive profitable quarters for the first time in more than a year after company officials this week reported a $455 million third quarter profit.
The ailing insurance firm posted a net loss of $9.2 billion during the third quarter of 2008 but rebounded with $1.9 billion in adjusted net income during the same period this year. AIG netted $455 million in profit during the third quarter partly due to a quiet Atlantic storm season with no major storms of any kind having made landfall in the United States. Catastrophic storms were the primary culprit for AIG’s third-quarter losses last year.
In addition to a quiet storm season, the corporation’s second consecutive quarterly profit largely stems from reductions in AIG’s exposure to risky investments tied to mortgage markets and other securities made by its subsidiary, AIG Financial Products, according to company officials.
“Virtually all key risk measures are down significantly, and the earnings again benefited from a positive unrealized market valuation gain on the Super Senior Credit Default Swap portfolio,” company Chief Executive Officer Robert Benmosche said. Results also reflect “continued stabilization in performance and market trends,” he added.
Benmosche said AIG continually monitors commercial rates and has restructured its AIG Financial Products subsidiary largely responsible for crippling the parent corporation on bad investments in mortgage-backed securities. AIG officials in July also changed the name of its property and casualty insurance business to Chartis to help distance it from the sullied AIG name brand.
Although the firm has posted recent profits, Benmosche cautions more problems must be overcome as the company struggles to emerge from its recent woes, including future “volatility in reported results in the coming quarters due in part to charges related to ongoing restructuring activities.”
Formerly the world’s largest insurance company, AIG became the world’s most indebted insurer after federal officials in September 2008 agreed to extend the company an $85 billion loan in exchange for an 80 percent share of company stocks. Federal officials said allowing AIG to go bankrupt would have a devastating impact on U.S. and international financial markets and later revised lending terms, making it a $153 billion loan with a lower interest rate and longer repayment period.
Under the new plan, the Federal Reserve provided AIG $60 billion in loans and the U.S. Treasury another $40 billion so company officials could buy up preferred stock. Federal officials also approved $53 billion to purchase the company’s risky mortgage-backed assets and other debt contracts.
AIG attempted to sell off its overseas life insurance units and other subsidiaries to repay up to $60 billion in loans this year, but a combination of tightened global credit markets, a shortage of qualified buyers and decreased market values during a global economic downturn have caused the firm to fall short of its lofty goal. Company officials intend to focus future business on property and casualty insurance markets and maintain a minority financial interest in some profitable overseas ventures.
AIG has raised more than $4 billion through the sale of several of its subsidiary units. Industry analysts say the insurer could raise up to $50 billion through the sales of AIG’s U.S.-based and overseas life insurance units and retirement savings units.