There was a time when American International Group (AIG) was one of the most revered names on Wall Street. But when Chairman Robert Willumstad held his inaugural conference call as CEO on June 16, he was shown precious little respect.
After Willumstad vowed to review AIG's operations rigorously, one research analyst questioned whether he could realistically deliver a new game plan in 90 days when he didn't have his own chief financial officer. Another asked why investors should believe anything would change. After all, Willumstad had been chairman for nearly two years and failed to rein in a management team that racked up record losses. "Weren't you involved in a lot of these decisions that have occurred?" UBS (UBS) analyst Andrew Kligerman asked the new chief.
Restoration: A Tall OrderIf Willumstad thought it would be easy to win over Wall Street when he stepped in to replace CEO Martin J. Sullivan, who was ousted by the board on June 15, he was wrong. Within days of his being named, AIG's stock price—almost halved since the start of the year—fell 2.35% on June 18. "To a certain extent, he's being viewed as more of the same," says someone with knowledge of the company. Already people close to AIG are discussing who could succeed him. But Willumstad himself told reporters that he's "a young 62" and hopes to grow as old in the job as Maurice R. "Hank" Greenberg, who was just shy of 80 when he was kicked out of AIG's top job three years ago following alleged accounting improprieties at the company. Willumstad declined to be interviewed for this story.
To restore faith in AIG, the new chief will need to revive a company that has seen its financial health and employee morale bruised during his tenure as chairman. The $110 billion financial-services giant was an innovative and aggressive global trailblazer during almost four decades of Greenberg's imperial leadership, which came to its abrupt end in 2005. Under Sullivan, a cherubic-looking Brit who joined AIG at 17, the company paid a $1.6 billion settlement to regulators in 2006.
Even as he worked to beef up internal controls, though, Sullivan seemed to have lost touch with the complexity of the business. The most glaring example was his statement in December that AIG's exposure to the residential mortgage market was "very manageable" and that the company had $21 billion in excess capital. Just two months later, AIG revealed that auditor PricewaterhouseCoopers found the company had a material weakness in its financial reporting. As of May, AIG had marked down its portfolio of credit default swaps by $20 billion over two quarters. Even then, Willumstad insisted Sullivan was "the right guy" for the job.
Shareholder PressureThat quickly changed after AIG confirmed on June 9 that it was once again the subject of federal probes. The Securities & Exchange Commission and the Justice Dept. are looking into whether AIG correctly valued its financial products. Soon after, major shareholders sent a letter asking the board to reach outside the company for a management change. Some viewed the probes as the final straw. "It was like your cancer was in remission and it had come back again," says Thomas Vandeventer of Tocqueville Asset Management.
The challenge was finding someone who could lead a shell-shocked insurance behemoth with two consecutive quarterly losses totaling $13 billion. AIG had a thin management bench under Greenberg's autocratic control. And this problem remains. For example, AIG is looking outside to replace its CFO, who has moved to another position. Moreover, top financial CEO talent is scarcer than ever. Four financial giants have removed their CEOs in the past year alone, and investors are in an unforgiving mood.
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