After Mortgage-Related Losses, AIG Ousts Chief
Monday, June 16, 2008
NEW YORK, June 15 -- American International Group, which has lost billions on bad bets on the mortgage market, on Sunday named former Citigroup executive Robert Willumstad to replace the insurer's besieged chief executive.
Willumstad, 62, will take over from Martin Sullivan, 53, effective immediately, the company said. Stephen Bollenbach, the former chief executive of Hilton Hotels, will be named AIG's lead director.
AIG named Willumstad chairman of the board in fall 2006, about a year after Willumstad left his post as president and chief operating officer at Citigroup.
Sullivan, a native of England who had worked with AIG for 37 years, now joins the long list of chief executives who have been pushed out since the credit crisis started slamming the financial services industry last year. That list includes Citigroup's Charles Prince, Merrill Lynch's Stanley O'Neal and Wachovia's Ken Thompson.
AIG -- the world's biggest insurer with $1.05 trillion in assets -- lost $7.8 billion during the first quarter of the year because of investments and contracts tied to bad loans. The insurer lost more than $5 billion in the fourth quarter of last year. After two straight quarterly losses, AIG revealed plans to raise $20 billion in fresh capital -- but investors reacted skeptically, unsure that extra cash would solve the insurer's problems.
Shares of AIG have fallen by more than 50 percent over the past 12 months, closing at $34.18 on Friday.
"In the coming months, we will conduct a thorough strategic and operational review of AIG's businesses and their performance," Willumstad said in a statement. "The Board and I recognize that results over the past two quarters have been unacceptable, but we are confident in AIG's future."
George L. Miles Jr., chairman of the AIG board's nominating and corporate governance panel, said Willumstad's "broad managerial and financial services experience makes him the right person to lead AIG through today's turbulent markets, drive further organizational change and rebuild shareholder value in the years ahead."
The company said it will hold a conference call with investors Monday morning to discuss the management changes.
Sullivan -- who received compensation last year of $13.9 million -- replaced Maurice R. "Hank" Greenberg as chief executive in March 2005. Greenberg, forced out amid accusations from then-New York State Attorney General Eliot Spitzer of fraudulent accounting, still controls the largest block of stock in AIG.
Last August, shortly after mortgage-related losses began roiling the financial services industry, Sullivan told investors that AIG was "well-positioned, even in the event of further deterioration in this market." But by May, Sullivan acknowledged that "the severity of the unrealized valuation losses and decline in value of our investments were beyond our expectations."
Besides big losses, the Securities and Exchange Commission reportedly began looking into whether AIG had overstated the value of credit default swaps, which are essentially insurance policies that investors buy to protect against loan defaults. A $9.1 billion loss in AIG's CDS portfolio dealt the insurer its most significant blow during the first quarter.