Greenberg's Ego Won't Let Him Quit Wrecking AIG
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Copyright 2009 MarketWatch.com Inc.All Rights Reserved [Publication Logo]
MarketWatch
March 5, 2009 Thursday 12:01 AM EST
SECTION: NEWS & COMMENTARY; Commentary; David Weidner's Writing on the Wall
LENGTH: 957 words
HEADLINE: Greenberg's ego won't let him quit wrecking AIG
BYLINE: David Weidner, MarketWatch mailto:dweidner@marketwatch.com.
David Weidner covers Wall Street for MarketWatch.
NEW YORK (MarketWatch) -- Maurice "Hank" Greenberg always seemed to have a big chip on his shoulder.
Looks as if it's still there. In the believe-it-or-not category, Greenberg is suing the company he built, American International Group Inc. (AIG) because he lost money in its implosion. Imagine the precedent if he wins: All scoundrels could sue their victims. Bernie Madoff could sue his clients.
Though he doesn't know it, Greenberg, 84, is illustrating how AIG came to be our nation's biggest zombie insurance company.
Greenberg was one of Wall Street's biggest operators, but he was also a bully -- not that bullying is always a bad thing in business since it helped him build the world's biggest insurance company. But it also was a flaw that brought him, his company and nearly the financial system down.
As chairman and CEO of AIG, Greenberg controlled one of the biggest companies on the planet. At its height, AIG was hugely influential. It not only had dominant positions in the Western world, but the company was one of the few financial firms to make inroads in China.
Everyone knows that at $61.7 billion, AIG had the biggest quarterly loss in history at the end of last year, but few remember the profits AIG was churning out before it hit the skids. AIG was a cash machine. It earned $14 billion in 2006, $10.5 billion in 2005 and $11.05 billion in 2004.
That's where it gets a little bit tricky, because AIG was forced to restate earnings for 2004 and the three years that preceded it. AIG used some accounting tricks and off-balance sheet entities to boost or tune down the company's financial reports. AIG executives also were targeted in the bid-rigging scandal at insurance broker Marsh & McLennan Cos. (MMC) .
Under pressure from Eliot Spitzer, then New York State Attorney General, AIG was forced to restate profits lower by about $4 billion, pay a settlement of $1.64 billion and untangle itself from C.V. Starr International, another insurance company that had questionable ties to AIG, including shared CEOs.
A day in court
Behind all of AIG's shenanigans was probably one of the most impatient and irritable chiefs on Wall Street, Greenberg. He was ousted in 2005 and did not go quietly. He sued AIG and its board.
These days, of course, we are getting a taste of the bad decision making at AIG during the last decade. This isn't exclusively the handiwork of Greenberg, since he left four years ago, but the blood is mostly on his hands. Greenberg built the financial products unit that is credited for bankrupting the company. He steered AIG away from its sweet spot: insurance.
This is where the bullying becomes important. There were some questions about where the AIG was going. Back in 2001, the head of Fitch Inc. mentioned AIG in a warning about companies getting into businesses outside their expertise, including credit-default swaps.
AIG also was criticized after it took big hits when Enron Corp. and WorldCom collapsed. In 2002, The Wall Street Journal named AIG as one of a handful of insurers at risk either from corporate bonds in danger of default or insuring credit default swaps.
The bully
Greenberg is the guy who started it all and had little patience for journalists or analysts who criticized him. He's not the first of his kind on Wall Street. Guys like Dick Fuld at Lehman Brothers or Michael Milken at Drexel Burnham Lambert used their talents and a raging inferiority complex to fight their way to the top.
"You couldn't even spell the word 'insurance'," he reportedly once told a group that included ex-U.S. Secretary of Defense William Cohen, former U.S. ambassador at the United Nations Richard Holbrooke and Harvard economics professor Martin Feldstein.
Greenberg always was looking for an edge. He ran a profitable but plodding insurance company in an era where big financial gains were happening at investment banks backing the technology revolution and later, in the mortgage and derivatives markets.
AIG under Greenberg looked at Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) the way Microsoft Corp. (MSFT) looks at Apple Inc. (AAPL) . It's not that AIG wasn't successful, it just wasn't hip. People didn't get excited about AIG.
So, in his chase for that extra profit, Greenberg got AIG into an unregulated market of junk with incalculable risk. Federal Reserve Chairman Ben Bernanke is not someone who raises his voice, but he did on Monday.
"AIG exploited a huge gap in the regulatory system," Bernanke said. "There was no oversight of the Financial Products division. This was a hedge fund, basically, that was attached to a large and stable insurance company, made huge numbers of irresponsible bets [and] took huge losses. There was no regulatory oversight because there was a gap in the system."
Now, the man largely responsible for that strategy is suing AIG - which is owned by taxpayers -- claiming that the company lost his investment. AIG has taken more than $160 billion in taxpayer money, but it may need more to pay the legal crew to fight Greenberg's suit.
Greenberg also has the audacity to make rounds on the business news circuit. He's called Ed Liddy, the former Allstate Corp. (ALL) CEO who's trying to salvage AIG, "clueless" and made the absurd claim that AIGs woes somehow developed after he was ousted from the company.
Greenberg might want to know that not only can Liddy spell insurance, he knows what insurance is and isn't. And if there is any justice in this world, people like Greenberg will not only let Liddy do his job, but offer to help clean up the mess.
Greenberg can start by shutting up and getting as far away from AIG as possible.
©1997-2002 MarketWatch.com, Inc. All rights reserved. See details at http://custom.marketwatch.com/custom/docs/useragreement.asp.
LOAD-DATE: March 6, 2009
Copyright © 2009 LexisNexis, a division of Reed Elsevier Inc. All Rights Reserved.
Terms and Conditions Privacy Policy
MarketWatch
March 5, 2009 Thursday 12:01 AM EST
SECTION: NEWS & COMMENTARY; Commentary; David Weidner's Writing on the Wall
LENGTH: 957 words
HEADLINE: Greenberg's ego won't let him quit wrecking AIG
BYLINE: David Weidner, MarketWatch mailto:dweidner@marketwatch.com.
David Weidner covers Wall Street for MarketWatch.
NEW YORK (MarketWatch) -- Maurice "Hank" Greenberg always seemed to have a big chip on his shoulder.
Looks as if it's still there. In the believe-it-or-not category, Greenberg is suing the company he built, American International Group Inc. (AIG) because he lost money in its implosion. Imagine the precedent if he wins: All scoundrels could sue their victims. Bernie Madoff could sue his clients.
Though he doesn't know it, Greenberg, 84, is illustrating how AIG came to be our nation's biggest zombie insurance company.
Greenberg was one of Wall Street's biggest operators, but he was also a bully -- not that bullying is always a bad thing in business since it helped him build the world's biggest insurance company. But it also was a flaw that brought him, his company and nearly the financial system down.
As chairman and CEO of AIG, Greenberg controlled one of the biggest companies on the planet. At its height, AIG was hugely influential. It not only had dominant positions in the Western world, but the company was one of the few financial firms to make inroads in China.
Everyone knows that at $61.7 billion, AIG had the biggest quarterly loss in history at the end of last year, but few remember the profits AIG was churning out before it hit the skids. AIG was a cash machine. It earned $14 billion in 2006, $10.5 billion in 2005 and $11.05 billion in 2004.
That's where it gets a little bit tricky, because AIG was forced to restate earnings for 2004 and the three years that preceded it. AIG used some accounting tricks and off-balance sheet entities to boost or tune down the company's financial reports. AIG executives also were targeted in the bid-rigging scandal at insurance broker Marsh & McLennan Cos. (MMC) .
Under pressure from Eliot Spitzer, then New York State Attorney General, AIG was forced to restate profits lower by about $4 billion, pay a settlement of $1.64 billion and untangle itself from C.V. Starr International, another insurance company that had questionable ties to AIG, including shared CEOs.
A day in court
Behind all of AIG's shenanigans was probably one of the most impatient and irritable chiefs on Wall Street, Greenberg. He was ousted in 2005 and did not go quietly. He sued AIG and its board.
These days, of course, we are getting a taste of the bad decision making at AIG during the last decade. This isn't exclusively the handiwork of Greenberg, since he left four years ago, but the blood is mostly on his hands. Greenberg built the financial products unit that is credited for bankrupting the company. He steered AIG away from its sweet spot: insurance.
This is where the bullying becomes important. There were some questions about where the AIG was going. Back in 2001, the head of Fitch Inc. mentioned AIG in a warning about companies getting into businesses outside their expertise, including credit-default swaps.
AIG also was criticized after it took big hits when Enron Corp. and WorldCom collapsed. In 2002, The Wall Street Journal named AIG as one of a handful of insurers at risk either from corporate bonds in danger of default or insuring credit default swaps.
The bully
Greenberg is the guy who started it all and had little patience for journalists or analysts who criticized him. He's not the first of his kind on Wall Street. Guys like Dick Fuld at Lehman Brothers or Michael Milken at Drexel Burnham Lambert used their talents and a raging inferiority complex to fight their way to the top.
"You couldn't even spell the word 'insurance'," he reportedly once told a group that included ex-U.S. Secretary of Defense William Cohen, former U.S. ambassador at the United Nations Richard Holbrooke and Harvard economics professor Martin Feldstein.
Greenberg always was looking for an edge. He ran a profitable but plodding insurance company in an era where big financial gains were happening at investment banks backing the technology revolution and later, in the mortgage and derivatives markets.
AIG under Greenberg looked at Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) the way Microsoft Corp. (MSFT) looks at Apple Inc. (AAPL) . It's not that AIG wasn't successful, it just wasn't hip. People didn't get excited about AIG.
So, in his chase for that extra profit, Greenberg got AIG into an unregulated market of junk with incalculable risk. Federal Reserve Chairman Ben Bernanke is not someone who raises his voice, but he did on Monday.
"AIG exploited a huge gap in the regulatory system," Bernanke said. "There was no oversight of the Financial Products division. This was a hedge fund, basically, that was attached to a large and stable insurance company, made huge numbers of irresponsible bets [and] took huge losses. There was no regulatory oversight because there was a gap in the system."
Now, the man largely responsible for that strategy is suing AIG - which is owned by taxpayers -- claiming that the company lost his investment. AIG has taken more than $160 billion in taxpayer money, but it may need more to pay the legal crew to fight Greenberg's suit.
Greenberg also has the audacity to make rounds on the business news circuit. He's called Ed Liddy, the former Allstate Corp. (ALL) CEO who's trying to salvage AIG, "clueless" and made the absurd claim that AIGs woes somehow developed after he was ousted from the company.
Greenberg might want to know that not only can Liddy spell insurance, he knows what insurance is and isn't. And if there is any justice in this world, people like Greenberg will not only let Liddy do his job, but offer to help clean up the mess.
Greenberg can start by shutting up and getting as far away from AIG as possible.
©1997-2002 MarketWatch.com, Inc. All rights reserved. See details at http://custom.marketwatch.com/custom/docs/useragreement.asp.
LOAD-DATE: March 6, 2009
Copyright © 2009 LexisNexis, a division of Reed Elsevier Inc. All Rights Reserved.
Terms and Conditions Privacy Policy
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