In Long Fight, AIG Braces for Losing Round
Thursday, February 26, 2009
Edward M. Liddy seemed weary as he wandered the 18th floor of American International Group's headquarters in lower Manhattan earlier this month.
The 63-year-old chairman and chief executive was fighting a cold. Fatigue had settled in around his small blue eyes. And he was shouldering burdens that cough drops and Kleenex could not solve.
"This place can be suffocating," said the man chosen by the government to lead AIG after a massive federal bailout last fall. "There's just an issue a second, and generally they're not good issues. Each rock has a scorpion under it. Or it has a bigger rock under it."
As AIG prepares to report another round of staggering losses next week -- some analysts estimate $60 billion for the fourth quarter of 2008 -- it could quickly find itself in the same predicament as last fall. The company's leaders are desperately hoping to stave off further downgrades to AIG's credit rating, which could force the company to pony up billions of dollars more in collateral to its trading partners and sink the firm into an even deeper hole.
The company has been immersed in talks with federal officials -- in daily conference calls and meetings at AIG and the New York Fed -- about once again restructuring the company's rescue package, which has grown to more than $150 billion.
Among the options is converting current preferred stock investment in the company into common stock, which would free AIG from paying costly dividends, according to a source familiar with the conversations. Another option would have the federal government forgive part of its outstanding loan to AIG in return for stakes in its operating divisions.
Federal officials also could choose to pump more cash into AIG, allowing the company to hold, rather than sell, its assets. Liddy has vowed to sell two-thirds of AIG's assets to pay back government loans, but that effort has suffered from falling values and hesitant buyers with their own credit problems.
A soft-spoken, genial veteran of the insurance world, Liddy arrived in September with a promise to employees that "the mess we're in is solvable." During his tenure, AIG's situation has gone from precarious to downright dire. The insurance titan's stock price has fallen steadily, to a paltry 46 cents. Congress and the public have clamored about fiscal irresponsibility, and investors and observers alike have questioned whether a company that was too big to fail might fail after all.
The trappings around Liddy's office hint of AIG's brighter days: Fine Asian art alongside stately wood tables and picture windows overlooking the financial district. Despite the outward elegance, AIG is tattered and bruised, and a sense of uncertainty pervades its towering headquarters at 70 Pine St.
Liddy shrugs off the grim predictions. "To run one of these big companies, you have to be an optimist," he said.
A fellow AIG executive put it this way: "Ed Liddy has the worst job in America."
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