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AIG’s Benmosche Outlasts Predecessor Liddy in CEO ‘Hot Seat’

Robert Benmosche
AIG CEO Robert Benmosch has soon completed a year at his post. Photographer: Andrew Harrer/Bloomberg

Robert Benmosche, who said the U.S. will be repaid with interest for American International Group Inc.’s bailout, is set to become the insurer’s longest-serving chief executive officer since the firm’s near-collapse in 2008.

Benmosche, 66, will begin his 12th month leading New York- based AIG in July. That is longer than predecessors Edward Liddy, who retired after about 11 months in August 2009, and Robert Willumstad, who was ousted after fewer than 100 days as a condition of the insurer’s 2008 government rescue. AIG was bailed out after losses on derivatives tied to mortgages.

“Given that he survived 12 months, I’d say Benmosche learned very quickly that this is not just another CEO job,” said Phillip Phan, professor at the Johns Hopkins Carey Business School in Baltimore. “He has to create a more sustainable, smaller operation, to move away from derivatives, and he’s having to do it all in the public eye.”

Benmosche must balance the demands of regulators and lawmakers while divesting AIG units to repay loans within the insurer’s $182.3 billion rescue, a goal that stymied his predecessor. Liddy, who was twice grilled by Congress over bonuses paid during his tenure, said in a farewell letter to staff that the job left him with “a few bruises.”

AIG posted more than $100 billion in net losses driven by soured housing market bets in the six quarters before Benmosche, the former CEO of MetLife Inc., took control of AIG. Weeks after starting, Benmosche had to apologize for telling staff that New York Attorney General Andrew Cuomo was “unbelievably wrong” for drawing attention to workers who got retention bonuses. Benmosche then drew criticism for vacationing in Croatia in his first month at AIG.

‘Taxpayer Ire’

“The unprecedented amount of taxpayer ire is what made the job such a hot seat, but Benmosche didn’t let himself get pushed around by the New York Fed,” said Clark Troy, an analyst for research firm Aite Group. “He has this presence and force of will that imparts confidence.” The Federal Reserve Bank of New York and Treasury Department have funded AIG’s rescue.

AIG has climbed about 39 percent through yesterday on the New York Stock Exchange since Aug. 7, the last trading day before Benmosche replaced Liddy. That compares with the 34 percent decline under Liddy and the approximately 90 percent plunge under Willumstad, who was ousted before he could unveil a plan to restructure AIG.

Under Benmosche, AIG halted the auctions of units including a U.S. investment advisory group, a mortgage guarantor and a pair of Japanese life insurers. The CEO told employees in August that he would only sell businesses for adequate prices, and in March announced deals to sell two life insurance divisions. AIG has posted a profit in three of the previous four quarters as investment results improved.

‘You’ll Get Your Money’

“I’m confident you’ll get your money, plus a profit,” Benmosche told the Congressional Oversight Panel in Washington during a May 26 hearing to examine the AIG rescue.

Benmosche negotiated a $7 million annual salary compared with $1 a year for Liddy. Benmosche has opted against holding conference calls to discuss quarterly results with investors, instead releasing audio statements. The past four CEOs all hosted calls.

AIG will first repay a Fed credit line with proceeds from divesting the non-U.S. life divisions and then turn to Treasury obligations, he said. The company owes about $26 billion on a Fed credit line and $49 billion to the Treasury.

Benmosche has been aided by the fact that firms including BP Plc and Goldman Sachs Group Inc. have gotten more negative media attention and congressional criticism this year than AIG, Troy said.

Goldman Sachs, BP

Lloyd Blankfein, CEO of Goldman Sachs, testified before a Senate investigations panel in April after the New York-based bank was sued by the Securities and Exchange Commission for fraud tied to mortgage-linked assets. BP’s Tony Hayward was denounced yesterday by U.S. lawmakers for failing to answer questions about the causes of the oil well explosion in the Gulf of Mexico that killed 11 people and caused the leaking of as much as 60,000 barrels of oil a day.

AIG’s agreement to sell its main Asian unit to Prudential Plc collapsed early this month, after the London-based insurer’s investors balked at the $35.5 billion price. AIG could raise the same amount in an initial public offering, the firm’s bankers have told Treasury.

The agreement to sell another non-U.S. unit, American Life Insurance Co., to MetLife for $15.5 billion is expected to be completed by year-end, Benmosche has said.

Benmosche said in April that he expects to remain at AIG for another year or two and he’ll help prepare the bailed-out company for his departure.

‘Appropriately Leveraged’

“Each year the demands of the job and the requirements are different as we begin to evolve from a large, giant, overleveraged company to one that is much more appropriately leveraged and a more focused company with less businesses,” Benmosche said in the April 1 interview.

Benmosche is winding down the derivatives unit that brought the entire company to the brink of failure in 2008. The portfolio of trades shrank to about $755 billion on March 31 from $941 billion at the end of 2009.

AIG was run for almost four decades through March 2005 by Maurice “Hank” Greenberg, who built the company into the world’s largest insurer. Martin Sullivan then held the top post for three years, until subprime-mortgage related losses led to his replacement by Willumstad in June 2008. AIG shares dropped by about half during Sullivan’s tenure.

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