AIG board names Willumstad as new CEO
By MADLEN READ, AP Business Writer Sun Jun 15, 8:48 PM ET
American International Group Inc., which has
lost billions on bad bets on the mortgage market, on Sunday named former
Citigroup Inc. 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 CEO of Hilton Hotels Corp.,
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. Citigroup
had passed him over for the CEO job — which went
instead to the now-dethroned Charles Prince.
Sullivan, a native of
New York-based AIG — the world's biggest
insurer with $1.05 trillion in assets — lost $7.8 billion during the first
quarter of the year due to investments and contracts tied to bad loans. The
insurer's first-quarter deficit was even more massive than its fourth-quarter
loss of more than $5 billion. After its 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 Sunday. "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 committee, 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 at Monday morning with investors to discuss the management changes.
Besides big losses, AIG is reportedly
facing a regulatory probe. The Securities and Exchange Commission reportedly
began looking into whether AIG had overstated the value of contracts called
credit default swaps.
Credit default swaps, or CDS, are
essentially insurance policies that investors buy to protect against loan
defaults, including subprime mortgage defaults. A surprisingly large $9.1
billion loss in AIG's CDS portfolio dealt the insurer
its most significant blow during the first quarter.
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.
Greenberg has been one of most outspoken of
AIG's shareholders, many of whom have blamed poor
management for AIG's financial troubles. In a May
regulatory filing, Greenberg wrote: "AIG is in crisis."
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."
News of Sullivan's dismissal arrives ahead
of this week's quarterly results from three major investment banks: Lehman
Brothers Holdings Inc., Goldman Sachs & Co. and Morgan Stanley. Wall Street
expects the three reports to offer some insight into how the beleaguered
financial sector is faring a year into the credit crisis — and whether
additional management shake-ups may be in store.
"Boards of directors are becoming less
tolerant, in general," said Scott Fullman,
director of derivatives investment strategy for WJB Capital Group in