AIG Rescue Has Failed, Greenberg Tells Lawmakers - Duh?

ARE you surprised?

By MICHAEL R. CRITTENDEN and LIAM PLEVEN

http://online.wsj.com/article/SB123867812627882317.html

WASHINGTON -- American International Group Inc.'s former chairman blamed the executives who replaced him for the company's collapse, refusing to accept any responsibility despite coming under fire from lawmakers on his role in fostering the firm's financial-products division.

Former AIG chief executive Maurice "Hank" Greenberg is testifying under oath today in Washington.

"I think they got greedy. I think they wrote considerably more business than they should have," Maurice "Hank" Greenberg told the House Oversight and Government Reform Committee Thursday.

AIG, in a statement, called Mr. Greenberg's claims "implausible."

"The claim that he could have hedged the entire book, or forced counterparties to renegotiate collateral provisions, is not grounded in reality," the company said. "It is also at odds with the fact that under his tenure none of these trades was ever hedged."

Mr. Greenberg, who headed AIG for 38 years before departing under pressure in 2005, said the U.S. government's effort to prop up the firm -- to the tune of $170 billion in government aid -- has "failed" and that the company should be restructured.

Instead, Mr. Greenberg continued, AIG's current management should be replaced and the government should reduce its stake in the firm to 15% from 80%.

"My approach focuses on reconstructing and sustaining AIG so that it will in the future be a healthy and vibrant company once again," Mr. Greenberg said in his testimony before the House committee. He added: "Let me be clear: AIG's business model did not fail -- its management did."

Lawmakers wanted more from Mr. Greenberg, pressing him on his continuing litigation with AIG and what role he played in fostering the financial-products division, the unit that wrote vast amounts of credit-default-swap contracts that ended up forcing the government's rescue of the firm.

"Mr. Greenberg's testimony should be taken with a grain of salt," Rep. Darrell Issa (R., Calif.) said. "At the very least, we must acknowledge these biases."
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In an interview, Maurice R. "Hank" Greenberg talked about his views on AIG, the impact of its problems on his finances, managing, and the financial crisis.

On his plan for overhauling the federal bailout of AIG:

"My role in this is to see what can be done to save the taxpayer money, and get paid back."
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On whether he feels any responsibility for what happened at AIG after he stepped down in 2005:

"I don't feel any responsibility at all . How can I be responsible for something that occurred when I'm not there."
* * *

On managing:

"I don't apologize for being a hands-on manager . People take a hint from the priority of the CEO."
* * *

On the impact of AIG's problems on his personal wealth, as a major AIG shareholder:

"Of course I lost considerable net worth . But I'm working. My life is not materially changed."
* * *

On the financial crisis:

"I'm not a great believer in government ownership and management . I would hope that government involvement would be reduced and eliminated as soon as possible."

Rep. Elijah Cummings (D., Md.) was more direct, asking Mr. Greenberg during a heated exchange, "Do you take any responsibility at all?"

Mr. Greenberg, accompanied by high-profile attorney David Boies, refused to accept any blame.

"No I don't," Mr. Greenberg said, referring to subsequent losses at the financial-products division and downgrades of AIG's ratings. He said the management that took over when he left the firm "must have paid very little attention" to the growing problems that led to the firm's demise.

Rep. Jason Chaffetz (R., Utah) was involved in a heated exchange with Mr. Greenberg over the number of AIG shares he still owns and whether he should use the proceeds of any stock sales to help pay back what the company owes the government.

"Would you be willing to give this money back to go back to the taxpayers?" Mr. Chaffetz asked.

Mr. Greenberg appeared annoyed by the question.

"Why would it go back to the taxpayers?" Mr. Greenberg said. "You go out in the street and start collecting from them."

Additionally, Mr. Greenberg said billions in government funds should not have been paid to AIG's counterparties; giving other financial firms guarantees would've been a better option.

"These cash payments to [credit-default swap] counterparties should never have occurred," Mr. Greenberg said. "It would have been more beneficial for the American taxpayer if the federal government had walled off AIG Financial Products...and provided guarantees to AIGFP's counterparties rather than putting up billions of dollars in cash collateral to those counterparties."
Discuss

Who's most to blame in the AIG bonus mess?

Mr. Greenberg stepped down as AIG came under pressure during an investigation of the company's accounting practices. He still is fighting civil charges related to that inquiry, and denies any wrongdoing. Mr. Greenberg also has spent much of the last four years sparring with AIG over various legal matters.

"I don't feel any responsibility at all" for AIG's problems, Mr. Greenberg said in an interview Wednesday. "How can I be responsible for something that occurred when I'm not there?"

Mr. Greenberg remains a major shareholder in AIG, though the value of his holdings has declined by hundreds of millions of dollars since the start of 2008. Mr. Greenberg, who also controls a company that is AIG's largest private shareholder, played down the impact of the stock's slide on him personally.

"Of course, I lost considerable net worth," said Mr. Greenberg, who also heads another firm, C.V. Starr & Co. "But I'm working. My life is not materially changed."

Among the issues being wrestled with by lawmakers is what the federal government's exit strategy should be. That is particularly noteworthy in the wake of the controversy over retention bonuses paid to employees in AIG's financial-products unit.

Mr. Greenberg has pushed for a new approach since the September bailout. By easing certain terms imposed on AIG, the government has moved closer to Mr. Greenberg's position in recent months.

He now wants the government to lower the burden on AIG even more, with the aim of returning it to profitability. Mr. Greenberg says taxpayers should be willing to take less from AIG upfront to improve their chances of getting repaid in full down the road.

Many of AIG's trading partners had purchased credit default swaps from the financial-products unit. The swaps are insurance-like contracts that required AIG to post billions in collateral when the investments they protected fell in value amid the housing crisis.

In a statement, AIG said that when Mr. Greenberg left in March 2005, the unit had already sold about half of the swaps that caused the biggest problems. AIG added that AIG's exposure under the contracts wasn't hedged.

Mr. Greenberg said the amount of exposure AIG faced under the contracts when he left was beside the point. When AIG lost its triple-A credit rating, which came after his departure as CEO, he would have hedged the exposure and tried to modify the collateral requirements, he said in the interview.

Mr. Greenberg and AIG also are involved in various legal disputes, and the Federal Reserve, which made the initial bailout loan to AIG, has been tracking legal matters involving AIG. Thomas Baxter, the top lawyer at the New York Federal Reserve Bank, recently wrote a letter expressing support for mediation between AIG and Mr. Greenberg "to resolve their outstanding disputes."

A lawyer for Mr. Greenberg, Lee Wolosky, said: "We don't believe these litigations with AIG belong in court."

Write to Michael R. Crittenden at michael.crittenden@dowjones.com and Liam Pleven at liam.pleven@wsj.com