AIG: Bailed Out but Trying Not to Sink
Friday, January 30, 2009
Becoming a ward of the U.S. government has been a blessing for insurance giant American International Group -- and a curse.
The massive federal bailout unveiled in September saved the company and its worldwide business partners from collapse. But by taking a huge stake in AIG as part of a federal rescue initiative worth up to $152.5 billion, the government has created a painful set of dilemmas as the company tries to repay its debts and assure its survival.
To keep competitors from poaching valuable employees, AIG has promised nearly a billion dollars in retention pay, only to be scolded by lawmakers for wasting taxpayer money.
AIG chief executive Edward M. Liddy has vowed to sell a majority of the company's assets to pay back government loans, in particular a $60 billion loan due within five years. But the sale of those assets could deprive the company of its largest revenue-generating operations, and the lackluster market for those assets means they are now going for what some critics call fire-sale prices.
Despite the government's backing, even the task of retaining clients, who once flocked to AIG for its sterling reputation and pristine balance sheet, has proven difficult as customers look elsewhere amid the uncertainty.
In recent months, scores of AIG veterans have departed for jobs at competitors around the world. Companies such as Ace Limited and Zurich Financial Services have snatched up AIG executives with increasingly regularity. Other companies, such as New York-based Allianz Aviation Managers, continue to receive résumés from employees at AIG.
"We did not hire any recruiters. We didn't solicit. We didn't initiate any of the contacts," said Allianz chief executive Harold Clark, who at last count had hired at least seven former AIG employees for positions ranging from administrative assistant to managing director.
The brain drain at AIG has persisted, though sources familiar with company operations say it has committed as much as $1 billion to hold on to key staff, a measure that would hardly have raised eyebrows two years ago.
But now, because the government owns nearly 80 percent of the company, some lawmakers have denounced that spending as a waste of taxpayer money.
"In a climate where daily we hear about people in the financial sector being laid off, you mean to tell me we can't find folks to replace some of these people?" said Rep. Elijah E. Cummings (D-Md.), a vocal critic of the retention pay program. "The other question is, where are they going to go?"
AIG publicly disclosed its plan to offer retention pay in September, days after it became the recipient of the most expensive rescue of a private company in U.S. history. It said at the time that the program would apply to approximately 130 executives and would consist of cash awards payable in two installments, one at the end of 2008 and the other at the end of 2009. According to Liddy, the base salaries for those involved in the payments ranged from $160,000 to $1 million a year, and the retention awards from $92,500 to $4 million.
"These employees are highly specialized and/or are part of businesses that control billions of dollars of revenue and value that will be needed to repay the U.S. taxpayer," he wrote in a letter last month. "Our competitors understand how valuable our top executives are, and we are acutely aware that they would like to siphon off our most talented leaders."