AIG: The company that came to dinner - A Profile of Fortune

 

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Copyright 2009 Time Fortune Inc.All rights reserved

January 19, 2009 U. S. Edition

SECTION: FEATURES; Pg 70 Vol. 159 No. 1

LENGTH: 5956 words


TITLE: AIG: The company that came to dinner

Signature: CAROL J. LOOMIS; REPORTER ASSOCIATE Doris Burke



In a scenario reminiscent of an old Hollywood classic, a giant insurance deeply distressed is becoming a guest the federal government can not get rid of.

INSURANCE GIANT American International Group, but only a few experienced people, is something irreverently called "kill list." It was created by the controller of the AIG, David Herzog, on Tuesday 16 September, when the nature of the company plunged into bankruptcy can not be bailed out rather than the U.S. government. Very late at night, Herzog, then 48, Saturday in the company of New York, headquarters of ruminating on the events of the day . WILLUMSTAD Robert, Director General of three months, has learned the Federal Reserve that it was, on the theory, perhaps, that the government can not extend a $ 85 billion credit line to a company and let things in the hands of management. The Board of Directors of AIG has been said that the new CEO is to Edward Liddy, who has overseen the decades before restructuring Sears Roebuck and then become head of a the impact of Sears, Allstate Insurance. More important to the crisis of the hand, Liddy's career made him a friend of Treasury Secretary Henry Paulson and a member of the board of Goldman Sachs.

A few minutes before midnight to 11:54 PM, Herzog called by a former officer of AIG "a prince, a simple shooting game," wrote an e-mail to the WILLUMSTAD filed, first to thank him for intensified earlier in the "difficult" for the management of the company. Herzog then threw his grenade e-mail: "Before you leave, I ask only one thing. Please clean the slate for Mr. Liddy. I urge the immediate result of redundancies." Herzog following lists the names of a vice-president, two vice-presidents, five vice-presidents, and a Vice President. AIG was the Advocate General in the packaging, as well as the heads of finance, investment, strategic planning, risk, credit, and human resources.

These leaders, according to Herzog, "... showed a clear trend of ineptitude that have contributed to the destruction of one of the largest corporations in America. Please do not do that Mr. Liddy is on his own. "Herzog AIG thought than 120,000 employees deserve better than that, and also" a sense of responsibility "for what happened." We We need leadership, "he says," and these people simply are not leaders. "

In a day before Liddy took over, shorn WILLUMSTAD the fire has not yet Herzog delegates. In the regime Liddy, two left. One was Richard Scott, Senior Vice President and other high-ranking executive on the list was Vice President and Chief Financial Officer Steven Bensinger, whose chief financial officer job Liddy Herzog promoted. The seven leaders on his list still work for AIG, five of them have for a long time chairman Maurice "Hank" Greenberg (who was forced by the Board in early 2005) and his successor, Martin Sullivan (ousted last June).

Asked in mid-December to midnight on top of David Herzog, the new CEO Liddy said he was "one of many points of information", he looked on his way to make its own decisions on people. retracts Herzog. "At midnight," he told Fortune, "after seeing a big company collapse, and with him nine years of my working life, I sent an emotional and rash skin e-mail that I deeply regret it was a product of frustration and fatigue. I totally disclaims, and I apologized to my colleagues. "

This e-mail was provided to Fortune by someone who is familiar with the AIG and the thought that any article on the present and the future take note of the direction of long for its extraordinary contribution problems. The decision to publish the e-mail, we have sought feedback from the nine people named Herzog. One person, Brian Schreiber, head of strategic planning, has accepted our invitation to speak. He angrily said that after learning of the e-mail, he asked Herzog to give an example of Schreiber had done everything that has hurt AIG. "He thought a long time and can not think of a simple example," says Schreiber. "He then stressed that the points of view, it seems important to the success of the restructuring of AIG. "

At the very least, e-mail episode is a vivid illustration of the extreme stress of racking business. Very comprehensive, spread over 130 countries, AIG is now a wounded gladiator, with a market value that crashed from $ 180 billion in 2007 to $ 5 billion. Competitors sensing a kill attacking society, but they may try to attract the best employees and customers.

It is not only the problems of AIG, it is ours. September 85 billion from the government plan, which we will call out to be too little, and the terms of the agreement have been more than AIG could handle. Thus, in November the federal government proposes to Plan B, whose parts add up to a complex state of mind bending refloating approximately $ 150 billion (which, to provide some perspective, over the 'assets of Procter & Gamble). This agreement includes $ 60 billion line of credit the Federal Reserve, $ 40 billion of preferred shares, which made the Treasury 70.9% owner of AIG, the Fed and two financing vehicles sponsored magically rid AIG financial statements of approximately $ 50 billion problem. The aim of the package, it considers that the management anyway is to keep AIG afloat while it works to recurrence in the form of a private company and to get Washington's life.

The notional cost $ billions 150here May be reduced by amounts that the government derives from the possession of AIG. Most of all federal are called to be the beneficiary of a plan, developed initially by WILLUMSTAD and spread by Liddy, AIG to sell major assets. They are both most of the properties and noninsurance AIG life insurance companies for a total of maybe 20 or 25 sales. The completion of the plan, says CEO Liddy, AIG would reduce annual revenues of approximately $ 100 billion to perhaps $ 40 billion and the return the company to its roots, property and accident insurance. Some estimates say that the proposed sale could bring in $ 60 billion, an amount equal to the portion of the rescue loan.

Both AIG and the government are burning to make these sales. But unfortunately, the buyers of properties AIG Liddy, who calls "our incredibly active world-class" are rare now. Many insurance companies that might normally have bid have been crippled by losses related to investments, and buyers in general can not rustle of funding. If he were forced to unload quickly, "said Liddy, AIG would be looking at fire sale prices that would benefit no one on the side of selling. Thus, AIG must breathe, and Plan B accommodated, extending the duration of the government's main credit line to AIG two years to five years. Two sides of the transaction even have a term of six years and are "subject to the extension".

Unfortunately, even five years in about AIG is well beyond what the government was considering. The links between these two parties, in effect, bring to mind the classic 1942 film The man who came to dinner, in which Monty Woolley, reading the unbearable Sheridan Whiteside arrives for dinner, injuring his hip on steps, and stay for the duration, driving guests Batty. In today's reality show, AIG is the company that came to dinner, and trapped, restless home is the government. Do not ask whether these two means of separation will be, because there is no deadline.

Point in fact, could be extended by a special means AIG troublemaker: a complex noninsurance think nobody can be sold, but that instead must be wound in a process likely to be both long and costly. This albatross is AIG Financial Products FP for short which is housed within the Capital Markets division. FP was founded 21 years ago to trade in derivatives, and he proceeded to hike the great boom in this field. For most of its history, the CEO of FP has long Hank Greenberg profits on cue, to help build a record of earnings growth until this sequence has been brutally crushed it several years ago by the gains that the remedies in question came almost all of society, including FP.

Worse still, these humiliations were coating (Greenberg and leading to the exit), AIG was deeply involved in all mortgage securities too early have been identified as toxic. An investment policy of hazelnut to the insurance company has helped create this problem. But the true agent of punishment was FP, which says nearly $ 80 billion contract credit default swaps, which provide investors against loss of principal and interest on the super-senior tranches of collateralized debt obligations ( CDOs) that were responsible for mortgage securities, some of them subprime. Then a financial tsunami engulfed AIG, which is structurally a holding company, the parent of a website for the operation of insurers. CDOs have declined in value and the credit ratings of the parent company went with them. This decline in the solvency of AIG triggered clauses in the credit default swaps (CDS) which enabled AIG to counterparties to demand collateral, and appeals for money to put the mother in a vise. There you have the situation which, in time, AIG had pushed into the arms of government.

The external situation is that AIG May have landed in this house of refuge, because Lehman Brothers did not. In the weeks leading to the crisis Monday 15 September, the government decided it could not or would not rescue Lehman, but instead of letting go bankrupt. Bankruptcy court records have since shown that Lehman had derivative contracts 900,000 and other parties, and each of the creditors of such contracts made on Monday morning that its control will not be in the mail. Financial blur the concept called "systemic risk" immediately became the harsh reality. Credit markets froze in the world and remained frozen on Tuesday, the day that AIG was headed toward bankruptcy, but did not succeed. The prevailing theory, all that seems financialdom accept the received truth is that the government has made on Tuesday he had committed a grave error to let Lehman go down and he knew he could not aggravate errors by allowing AIG to fail a day later.

Thus, AIG has lived to become a government of districts, and in this guise, it is unique. While it is a famous match Fannie Mae and Freddie Mac, which are also 79.9% owned by the government. But the world has always known the twins for the children of non-federal government. Until September, by contrast, AIG never had the slightest regard, at least publicly that a company would need government support, much less urgent. View, in fact, a "too big to fail" list or the term is often in these days of derivatives, a "too interconnected to fail" list. If more intelligent, informed, business people of the world in 2007 were asked to name the five best candidates in this list, we would probably not AIG have placed on him. Among the spectators, therefore, AIG and the sudden collapse of his need, my God, for $ 150 billion! tends to be one of the great speakers of the credit crisis. In statements on why he bailed out AIG, the government simply whispered "systemic risk". But he never explained why he took this threat very seriously, and the New York Fed, the government of foster parent for AIG, not to discuss the company at all with Fortune.

Our reports indicate, however, that fears of systemic risk are certainly not crazy. FP, in particular, is fertile ground for this terrible contagion, because it has links to derivatives counterparties in the world. Catch a horrified reaction of a trader in New York currency when it heard in September that AIG could file for bankruptcy: "No!" she says. "AIG would be much worse than Lehman. AIG is everywhere."

Today, FP is about $ 2 trillion of derivatives, not a great book in the world (JP Morgan Chase has over $ 80 billion), but known to be responsible for complex and long - contract. The most famous among these derivatives are the $ 80 billion of credit default swaps described above for counterparties that have been around 25 financial institutions in the United States and at least seven other countries. All counterparties, of course, have been spun by the credit crisis and vulnerable to a domino effect if AIG has less. Liddy proves himself a master of understatement in describing the threat to return: "It would have saved their capital adequacy and may have caused a problem."

The remaining $ 1.9 trillion of FP derivatives, many of which are items such as interest rate swaps and currency futures, a little attention that AIG was swooning. But the fact is that these derivatives linked to AIG numerous industrial and financial counterparties around the world between them for a currency trader who is concerned that work, for example, could have hung at least some of these dry . Another operation in the FP has guaranteed $ 20 billion municipal investment agreements, which FP was indeed the exploitation of the states and cities. An AIG bankruptcy would have done these municipalities of creditors of AIG, and probably with the sting of loss. Money market funds are also big holders of the debt of AIG.

Then there is the uncertainty of what a bankruptcy would have AIG insurance companies. Make your own list of systemic risks AIG, one day, the director of the New York State Insurance Department, Eric Dinallo, has written to the idea that the failure of a company once regarded as impregnable to cause a general loss confidence in the insurance industry. This may indeed gained some substance on AIG's fateful day of 16 September, during the spread of new global society that operating companies have been sending $ 20 billion in rescue money from parents of AIG. In Singapore some customers quickly rushed to AIG offices and sought to withdraw money from their policies. AIG PR people panicked in the insurance version of a term, to a strange press release which assured the world and particularly in Asia that the company's operating insurers husband their money for themselves.

Ultimately, Dinallo said, "it is invaluable that the consequences of bankruptcy would be." The question in any case, lapsed on 16 September. By saving AIG, the federal government preempted the question of what would have happened if she had declined, and moved to the argument of what is happening now.

ED Liddy, 62, the man charged with the Herculean task of making valuable AIG again, retired in April as chairman of Allstate, a company in Chicago, and became a partner in the private equity firm Clayton Dubilier & Rice, a job he thought might give him "a little less intense." Then Henry Paulson called on Sept. 16 asking him to take over AIG, ensuring that it is the combination of insurance and the restructuring and experience more, "Your country needs you. " Well, Liddy said, "you can sit on the sidelines, or you can get in the game and try to help."

Liddy remains the home base of Chicago, which he said he tries to return every two or three weeks. Speaking to Fortune, he has insisted that flying commercial coach reservation and hope for an upgrade. This statement is clearly the result of biting criticism that AIG has received, including the Congress, for arranging travel expensive for agents and financial planners. Liddy defended the thrust of those as good for business, but he grew AIG fully aware of the need, its taxpayers owned status to be frugal. About a client event, a partridge, which prompts some senior officers of AIG mis-directed in England, Liddy expressed real disgust: "That's wrong, and these people were severely taken to task. We reprimanded, they were shorted pay. "

Hold on costs Liddy extends to compensation. In treatment, it is 1 dollar a year man, and you will not receive bonuses for 2008, so to come in 2009. The same provisions apply to pay the largest Liddy location, its new vice president of the restructuring, Paula Reynolds, 52, who had been CEO of the insurer Safeco until it closed its sale to Liberty Mutual September. His next project is to spend several months cleaning the closets. Liddy then, it has been known for years, called, and she signed. Liddy as she kept a distant country of her own in Seattle where she tries to come back from time to time, the commercial flight, of course.

But these days, working around the AIG is the consumption and, more often clouded by the prospect that this fight, with its uncertain future, will lose its best employees and customers. Liddy has attempted to shed light losses on both fronts. However, the defection of new employees of the AIG continues to surface and, sometimes, the departures are accordingly. In December, Liddy lost both the CEO, Kevin Kelley, and the manager, Shaun Kelly, Lexington Insurance, AIG one of the largest property and casualty companies, and the two went Bermuda insurer Ironshore. AIG also lost people to another company in Bermuda, Ace Ltd, which is headed by Hank Greenberg's son Evan Greenberg.

Many people still to AIG, which most courts had nothing to do with his sins, are demoralized, both emotional and financial blows. Over the years, valued employees were paid in part in AIG stock, and encouraged by persuasion or direction to keep it. Reynolds tells the story of a meeting recently in which a person fails, the suffocation of an explanation that it was difficult to concentrate on work "because we have been undone."

Customer history is uncertain at this time: This article went to press as AIG has faced the key date for the policy renewal on 1 January, at which time the great deal with many commercial buyers of insurance will be casting Economic yes or-no vote on the insurer. The risk manager at a Fortune 500 company who recently stated that he would be keeping AIG in his own image, but to reduce its stake in its coverage. It is a fact, Liddy said, he can live with: "The important thing is that we keep the relationship." AIG Another customer, a broker in New York which trade policies, said he had found some risk managers and their bosses and treasurers as divided on AIG. Risk managers, he said, is favorable to hang tight expertise of the AIG insurance, while their superiors were inclined towards the "Take me out of here."

In the short term on 1 January will be essential for AIG. In the longer term, the main question before the house is the restructuring of the sale of Reynolds, who for much of his leave AIG cleaning cupboards instead of hers. Reynolds, who is nothing if not frank, describes a process of selling the sounds on the verge of insane and, yes, dear, "Everyone is feeding on society, as it was carcass of a bankruptcy. Everybody's meter is running. We have too many bankers, too many consultants. You can not get work because there is so much noise of people running. "For the record, AIG Blackstone is the principal adviser to the world. Another consultant, BlackRock, helps AIG Financial Products value of its assets, and McKinsey & Co. is also a consultant for FP.

Throughout this time, the ghost of Hank Greenberg, CEO of AIG for 37 years, the use of haunting remake society very complex, he built (see "Hank's Last Stand" on fortune.com). A special sales barrier, "says Reynolds, is that a 4000 AIG subsidiaries and other legal entities, with all sorts of cross-ownership between them. "With all due respect to our former president," she says, "Much has been made around the Tax Act of 1986." This is a U.S. law that strengthened the tax rules on financial services income earned overseas. Reynolds says that if the law were repealed provisions actually, many ownership structures that AIG has built have not been taken down. Thus, simplification is absolutely necessary, she says, and a large team of lawyers is on the case.

To warm the bodies of the team, Reynolds has drawn the support of the operating companies of AIG. It is a spread-out collection of silos connected to a central holding company that has relatively few people for too little work by hand, say the two Reynolds and Liddy. Of course, people never Greenberg grouped with him. He ran to the head of AIG, apparently unfazed by an accounting system so inefficient that AIG is well-known ex-leaders to always be in just under the wire during his SEC. Accounting systems hit the CEO since Greenberg and Sullivan WILLUMSTAD and remain today a trial. Reynolds said: "The best businesses are run by people who kick their tires every day. We do not even know where are the tires, and even less to go on foot. If we can return to the size of a company where you can kick our tires smarter every day, it would be a magnificent result. "

The misadventures of AIG that architecture can create silo is strongly illustrated by the disaster in the mortgage backed securities. These problems have certainly raised in AIG Financial Products. But the fact is that the PC has had a moment of awakening at the end of 2005, when he began to believe that the boom was almost an unfortunate end and decided to stop the sale of credit default swaps on super-senior tranches of CDOs. He had a few deals in the pipeline, however, so full "multi" CDS AIG named these spiffy articles climbed a little further in early 2006 for a total of nearly $ 80 billion. Later, in 2006 - and 2007, the mortgage has vintage-toxic, AIG spoke with pride of its analysts about wise decision to withdraw before the trouble hit. The company has proven to be extremely wrong to believe she was safe, of course, since the beginning of harvest were too cream. But the fact is that in August 2007, the beginning of the credit crunch and CEO Martin Sullivan, head of FP, Joseph Cassano, said all those who listen to you that FP had avoided the mortgage ball avoiding titles in 2006 and 2007 were the time considered toxic.

Various other AIG silos, unfortunately, are not listening. The regulation of statements made by the operating subsidiaries of AIG show that a raft of these companies, particularly life insurers of them were still loading on the end of the time of residential mortgage-backed securities (RMBS) in December 2007 after months AIG had begun to congratulate ducking mortgage on the ball. Why, Liddy was asked, would be one arm of AIG to buy mortgage-backed securities, while another is to pronounce them dangerous? As if there could be someone in the empire of AIG, it did not offend, Liddy States carefully its response: "You know, the company is highly decentralized, remote business. And different parts of the company has taken various risks. Let me just stop there. "

We will not leave completely, because the AVP was found to be connected by tunnels to the hell known lending. For several years, AIG operating companies, like many other large holders of fixed income securities, have lent to these banks and brokers who need them for reasons perhaps customers who wish to sell uncovered. For this service, donors received cash collateral which slightly exceeded the value of bonds. Over the years, AIG has invested companies that short-term conservative, liquid investments, and therefore always been willing to repatriate the guarantees of their clients if she wanted to return.

But this strategy has not made much money. Thus, in the middle of this decade, AIG companies began to both increase the amount of lending that they were the total reached about $ 90 billion in the third quarter of 2007 and invest in the long security term, apparently confident of AAA titles that offer good returns. The main choice of investment is, you guessed it, RMBS. It is inelegant for selection to the left of the AIG companies not only in the short term by using the money to invest, what is known of madness, but also to put that money in securities being impenetrable to the both value and tumble establish new records for illiquidity. When news of problems spread of AIG in 2008, banks and brokers have come to tear redeem their cash, and the AIG companies, it could not because it is more related to RMBS unsaleable. It was a second is that tightened around AIG. A company has initiated this request for placement conspiracy "that one of the dumbest things I've ever seen." (Fortune was refused an interview with the head of the AIG investment, Win Neuger, which was one of the leaders of Herzog kill list. Neuger a lieutenant also on the list, Richard Scott, left, as indicated above) .

Unfortunately for the restructuring of AIG, the RMBS Saturday strongly marked during the 2008 crisis on the balance sheets of life insurance companies that AIG has decided to sell. But what the buyer wants to take on billions of tainted, not the value of mortgage-backed securities? Enter government troops: RMBS with a face value of $ 39 billion, scored $ 19.8 billion for AIG, have simply been helicoptered to the war zone in a new off-balance sheet financing. This vehicle was a six-year, renewable $ 19.5 billion of the Fed loan and $ 5.1 billion in equity of AIG. If the loan is repaid and the time saving RMBS in value, the Fed and AIG share gains, with the Fed is the lion's share.

A possible distribution of earnings, if any, applies to another special vehicle set up to sweep most of the multi AIG CDS risk of the company's financial statements. The Fed made a loan of $ 30 billion to the vehicle, and AIG contributed $ 5 billion in equity. Pour couper à travers les détails de cette transaction labyrinthique, le total de $ 35 milliards, plus de garanties que les contreparties de la tenue d'AIG, est destiné à faire de ces parties ensemble sur environ 65 milliards $ de valeur nominale de CDO. Pendant ce temps, l'AIG sera libéré de ses obligations d'échange sur ces titres. Ce ne sera pas débarrassé du risque direct AIG sur multisectorielle CDS. La société continuera à se battre avec $ 9,5 milliards de dollars de swaps qui ont été pure spéculations, plutôt que comme des contrats d'assurance, et que le gouvernement du programme de sauvetage n'est pas prise en charge.

Les deux nouvelles entités permettra de tester la théorie largement admiré par des gens qui possèdent des titres hypothécaires qu'il ya une bonne valeur en eux s'ils sont détenus jusqu'à l'échéance. Cet avis est d'ailleurs entérinée par Rodney Clark, chef de file AIG analyste à Standard & Poor's, qui estime que les recouvrements sur les titres hypothécaires de AIG pourrait être "potentiellement important" et qu'il est regrettable que l'AIG a renoncé à une si grande partie de la hausse de la gouvernement. Clark est d'avis en effet un des cadres can't win-proposition pour le gouvernement fédéral: Si on faire de l'argent sur les RMBS, c'est bon pour le contribuable. Mais parce que AIG se partageront en si peu de gains, ils ne vont pas faire grand-chose à la société de la main du gouvernement.

Let's résumer les composantes de la largesse du gouvernement: Il ya trois éléments qui s'appuient sur des prêts Fed: de 60 $ milliards de ligne de crédit, de financement et de deux véhicules, l'un offrant un prêt de $ 19,5 milliards, l'autre 30 milliards de dollars. Parallèlement à la tenue du Trésor de 40 milliards de dollars d'actions privilégiées de AIG, en payant 10% du dividende. Grand total: $ 149,5 milliards, à travers l'histoire sera arrondi à 150 milliards de dollars. Et qui ne prend pas en compte la possibilité que la route de Plan B sera révélé comme insuffisantes et un plan C qui doivent être annoncées, ce qui fera hara-kiri épées obligatoire à la conférence de presse.

Le chef de la direction qui a mis les produits financiers d'AIG dans la malheureuse multisectorielle CDS, Joe Cassano, 53 ans, n'est plus à l'AIG. Il a "démissionné" par AIG de "concurrence" Février dernier, tout comme la société a plus de $ 11 milliards de dollars de 2007, des pertes non réalisées sur les $ 80 milliards de dollars de CDS multisectorielle alors en circulation. Ces pertes (pour ne pas parler d'un autre 23 milliards $ qui est venu plus tard) saccagé la confiance des déclarations que Cassano avait fait à propos de la CDS. Un célèbre, celui d'un des analystes réunion en août 2007: "Il est difficile pour nous, sans être irrévérencieux, de même voir un scénario ... dans n'importe quel type de royaume de la raison qui nous voir perdre 1 $ dans une de ces transactions ». (Voir article précédent). Un fait remarquable: la retraite AIG directeur dit il ya quelques années, Cassano a été sur la courte liste des candidats à la succession Hank Greenberg en tant que patron d'AIG dans sa totalité.

Aujourd'hui, FP a un tout nouveau chef intérimaire, Gerry Pasciucco (pa-CHAUSSURE-co), 48, qui est venu en Novembre de Morgan Stanley, qui est un conseiller de la Fed de New York et est plus ou moins prêt Pasciucco, un des marchés de capitaux expert, à la FP. Pasciucco connaît sa mission que si elle avait été gravé à l'intérieur de ses lunettes: il est à "risque" et le vent, il FP avec toute la célérité requise. Liddy dit: "Nous n'allons pas être dans cette entreprise. J'ai fait cette déclaration. Je veux sortir".

La grande question est la rapidité qui peut arriver. Liddy lui-même, parlant à des analystes au début du mois de Octobre, a dit qu'il faudrait un certain temps. Et pour une "situation antérieure instructive", il a évoqué les analystes de l'expérience de Warren Buffett Berkshire Hathaway à sortir de General Re Securities, une opération de l'origine des produits dérivés inspiré AIG FP. La valeur notionnelle des produits dérivés de Gen Re, cependant, n'était que d'environ 1 billion de $, au plus fort, contre AIG 2 billions de dollars.

Buffett est en effet l'expérience instructive "Même pour moi," le chef de la direction de Berkshire fissures. Après l'achat de Gen Re en 1998, il a tenté sans succès de vendre les produits dérivés, puis, en 2001, le vent a commencé à le réduire. Buffett dit qu'il a dit à la direction de Gen Re à être patient à faire le travail, car il savait que ses difficultés. Les produits dérivés, il a dit presciently Berkshire actionnaires sont donc un peu comme l'enfer: «facile d'entrer et de presque impossible à la sortie" C'est parce que, si le but est de mettre fin à tous vos contrats de déchirer les billets, comme on dit, vous devez mener des négociations avec tous les vos contreparties, dont la plupart seront intéressés par exigeant une livre de chair.

Quatre ans plus tard, au début de 2005, Buffett a donné ses actionnaires d'une mise à jour: Gen Re Securities a commencé avec 23.218 contrats et avait travaillé à ces 2890. Le total des pertes sur cette entreprise, dit-il, a été 404 millions $. Le contrat qui était réglée, il a ajouté, a été celui qui a eu "une durée de 100 ans!"

Gerry Pasciucco FP a dit entre 40000 et 50000 contrats. La prépondérance de ces échanges sont, et une petite partie des options. Les options sont un problème particulier dans l'instabilité des marchés, car ils ont besoin "dynamique de couverture», ce qui signifie qu'ils doivent être couverts de façon répétée que les prix swing. Some of Pasciucco's 380 employees are wrestling with that bear, and a raft of others are trying to settle contracts. Many of these stretch out for years, because from its start FP knew that contracts beyond, say, 20 years in length attracted the least competition and therefore were odds-on to be moneymakers. Pasciucco doesn't know of any 100-year contracts in the shop. But there is one, he says, that runs to 2080.

Pasciucco has divided FP business into 23 segments for instance, commodities is a segment and says he is intent on winding them down in a very organized way. At his office in Wilton, Conn, (the other of FP's big offices is in London), he sometimes gets thoughts about the creditworthiness of counterparties from Fed officials who are based on the premises. He says those observers recognize the need to balance the competing objectives of speed, careful use of cash, and getting maximum value out of FP's business.

Pasciucco will not say how long he's slated to stay around FP, but it is clear he's thinking more like one year than five. The business, he says, will gradually be wound down, and then AIG will be left with a relatively small number of contracts (which is in fact Buffett's situation) and what insurers call a "tail" that extends residual risk into future years.

It's not easy to believe it's going to be that simple. Nothing about derivatives is, and FP is hardly a routine player. Another party sensing there may be a lasting issue here is Moody's, which in December said of FP's wind-down: "The costs and duration of this process are difficult to estimate and could be substantial."

Liddy, however, presents himself as an optimist about AIG. He sees the company selling its properties and regaining strength to the point that it can talk to the government about ways to cut down that 79.9% ownership. All that he says on this point is very vague: "There's just more thinking that needs to be applied to that." Meantime, he says AIG has a good "partnership" with the government. He treats this partner like the gorilla it is: "Whenever you want to do anything that requires shareholder approval," he says, "you have to go spend some time with them."

Not all parts of the world are as cheerful about AIG's future, partly because the company's stock price under $2 a share suggests a waif hanging on by its fingernails. In December a financial website, 24/7 Wall Street, actually listed the company as one that wouldn't be around at the end of 2009. That seems extreme, if only because it is not easy to imagine the government walking away from the $150 billion it already has on the table. On the other hand, appearing on Meet the Press right after AIG was saved from bankruptcy, Hank Paulson dared to use the L-word, saying the government had put up its funding facility (then $85 billion) "to allow the government to liquidate this company...." And then he left the thought unfinished, as he referred to avoiding "a real catastrophe in our financial system."

Among the less sanguine AIG experts around is Hank Greenberg, who hangs on every move the company makes. Speaking recently in the quiet Park Avenue offices of C.V. Starr & Co., which he heads and which is AIG's largest shareholder after the government, he talked about the people who call to tell him they are leaving AIG and about the poor insurance results it reported in the third quarter. The unspoken subtext in everything he says is that things would be different if he were there.

Meanwhile, he clearly does not approve of the way Uncle Sam is treating its guest. "The government," he says, "should realize that its purpose is to get paid back, not wring every dollar of income it can out of the company today." He doubts that AIG is viable unless there's a Plan C some lightening of the burden that interest and dividends place on the company and some move by the government to be more generous in sharing gains it extracts. Whether or not Greenberg is right about the need for the government to alter its approach, it seems dear that AIG will be dining at the taxpayers' table for years to come.

FEEDBACK cloomis@fortunemail.com

AIG FAILING WOULD HAVE BEEN "LOTS WORSE THAN LEHMAN. AIG IS EVERYWHERE."

"EVERYBODY'S FEEDING ON THE COMPANY LKE IT WAS A BANK RUPTCY CARCASS."

THE COMPANY'S STOCK PRICE SUGGESTS AWAIF HANGING ON BY ITS FINGERNAILS.

BOX STORY:

THE WORLD OF AIG FINANCIAL PRODUCTS WAS GREAT UNTIL IT WASN'T.

[This article contains a complex diagram. Please see hardcopy of magazine or PDF.]

AIG Capital Markets

$5 billion

2000 revenues operating income

2002

2004

2006

2008 as of 9/08

$0

-$10 billion -$20 billion

IN AIG'S HALLS the division called Capital Markets houses AIG Financial Products, which over the years has been the division's big profit contributor (and also rewarded its employees richly). The loss in 2003 was the result of accounting shenanigans that led to a restatement, and the next, in 2006, arose from new accounting rules for hedging. But the hemorrhaging in 2007 and 2008 trading losses make for negative revenue reflected losses on FP's doomed multi-sector credit default swaps on CDOs.

SOURCE: COMPANY REPORTS

NOTES: See also additional image(s) in Table of Contents of same issue.

GRAPHIC: TWO ILLUSTRATIONS: ROSS MACDONALDPHOTO: DAVID YELLEN; AUTOS AND HOMES were Liddy's insurance beat at Allstate. The vastly more complex world of AIG has left him dealing with problems of enormous depth. PHOTO: COURTESY OF AIG; IN THE HEAT of AIG's takeover by the government, Herzog wrote an e-mail about mismanagement that he now disavows.PHOTO: DANIEL LACKER BLOOMBERG NEWS; THE DEPARTED Greenberg (top) ran AIG far more than three decades; Sullivan (middle) far three years; and Willumstad for three months.PHOTO: RAMIN TALAIE CORBIS; [See caption above]PHOTO: JAY MALLIN ZUMA PRESS; [See caption above]PHOTO: DAVID YELLEN; RESTRUCTURING HEAD Reynolds has slowed AIG's plans to unload life insurers because she's in a market short of buyers who'll pay up. PHOTO: MAIL ON SUNDAY/ZUMA PRESS; CAUGHT venturing out of his London home, former AIG Financial Products boss Cassano was caught as well by mortgage bets that went sour.

LOAD-DATE: January 6, 2009

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