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I feel sorry for thousands of employees, both active and retired. I get hundreds of letters and phone calls and it’s very painful; loyal people who worked full careers at companies, helped build it, wiped out. Senior executives who worked with me for years -- I had a call yesterday from a very senior executive who works outside the United States and worked for me for 25 years. He called and said he was being forced to retire at year end. He’s lost everything virtually. It’s very painful.
Look at all the pension funds that have been hurt around the country. New York State’s pension fund is down around a $1.2 billion in valuation. Then you’ve got millions of shareholders who have been hurt worldwide. So of course I feel horribly about that. Two companies that I chair, we had roughly $20 billion of AIG value. That’s been reduced very, very sharply all the senior people working with me who worked with me at AIG have lost much of their net worth.
So yes, I feel this is a tragedy. It did not have to happen and I hope there is still some hope to remedy it.
AIG'S OPTIONS
DANKWA: Do you think in hindsight that bankruptcy would have been a better option?
GREENBERG: I don’t know if it would have been a better option. Certainly you could have gotten DIP [Debtor-In-Possession] financing right away I believe, and you could have had a prepackaged bankruptcy. From the director’s point of view, it wasn’t a better deal because the directors are not covered for liability in a bankruptcy. I was not at the table so I can’t tell you why they chose these draconian terms rather than a bankruptcy. I don’t know how many of you saw the Wall Street Journal today but there’s a pretty good diagram on the credit default swap book and it’s very clear this was done by the government, the Fed -- and the Treasury -- because of counterparty exposure--some of it foreign companies, foreign banks, foreign investment banks. AIG was the funnel...and the counterparties got the money. There’s something wrong in my mind with that structure. We give it to you, AIG, the government says, you owe it back to us and you owe it back to us at 14 1/2% (interest.) Now you take that and you give it to the various counterparties because you owe it to them. So they get it. Rather a simpler way would have been for the Fed to simply guarantee AIG as the counterparty and charge a fee for the guarantee and no cash had to move at all.
So since I wasn’t there arguing on behalf of AIG I can’t tell you why they chose this route. Now the Fed would probably say, 'We didn’t have the authority," but they’ve put up guarantees for the money market funds. So it’s not as if they haven’t done this before.
So I’m puzzled by the outcome of that. Obviously, I’m pained by what’s happened to AIG.
DANKWA: You’ve seen the plan in terms of the assets that AIG wants to sell. Can you comment on, if you were in control what would you sell or not sell in terms of these assets?
GREENBERG: Well, if I was in control this wouldn’t have happened. I think that some of the peripheral assets will be sold but you have to pick the timing in selling them. There will be a garage sale now if you sell assets. Certainly ILFC [AIG's subsidiary International Lease Finance Corp.] at the right time is an asset that should have been sold. I had that on my list.
DANKWA: You had plans before.
GREENBERG: It was getting too big. Even though AIG did not guarantee the debt, if you own it and it defaults on debt and you don’t take up that responsibility you’re toast, as a company. So you had to minimize that exposure. It’s a great company and did very well for AIG over the years but there was a better way of managing that. I had a strategy that we would have retained some of it but we would have had some partners. Then I think it would have been fine. Probably Consumer Finance at the right time should be sold. You’ve got to understand what made AIG different. When you’re running a company like AIG, which we started out in the property/casualty business, property/casualty as you know is a cyclical business. So the first thing we did was over the years was broaden the franchise in property/casualty and became essentially the largest commercial underwriter in the United States with different products. We were very new-product oriented, developing new products all the time which broadened the base and gave us diversification within property/casualty.
Also recognize that we had to have a low expense ratio, and we did. We were very efficient in running the company. We had a profit center structure. Every profit-center manager had to achieve those goals and they strove very hard to do that. We had an expense ratio, call it roughly 20%. For a big company that was pretty damn good. Not many met that test. So you can tolerate a higher loss ratio and still come out pretty good.
Then we had a global franchise. The AIU [American International Underwriters] business overseas was always better than domestic. So we had diversification within the property/casualty business. But it’s not enough because you do have a Katrina once in a while. You do have earthquakes. We had Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7
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