Willumstad Calls on Hank Greenberg

Ah, to be a fly on the wall when Robert Willumstad makes his conciliatory call on Hank Greenberg today. Do sparks fly? Or is this the beginning of a thaw in the icy relationship between Greenberg and AIG? Time will tell. The important thing is that Willumstad reached out to AIG’s long-time CEO. It is exactly the right thing to do. And it could not have happened as long as Martin Sullivan was in charge.

Willumstad has at least one big plus going for him: he was not on the AIG board when it asked for Greenberg's resignation. And maybe he can begin to point the company in a new direction. But Hank Greenberg read my book, Fallen Giant, and even if he hadn't, he must have had his suspicions of what was going on behind closed doors. On page 169, published in 2006 after Willumstad's election to the AIG board, I say: "Greenberg apparently feels (Frank) Zarb's actions were a power grab. There are others at AIG, including a very senior executive, who agree. This executive argues that Zarb has a long-term agenda for AIG....Zarb wants different leadership (than Sullivan), perhaps even the new AIG director from Citibank, Robert Willumstad, who is expected to replace Zarb as chairman."

But Greenberg is a practical, hard-nosed businessman and if Willumstad can improve results, he will listen. Or more than likely, Willumstad will ask for suggestions and Greenberg will have plenty.

But I wonder if Willumstad can really deliver on what I bet are the two most important items Greenberg wants from AIG: l) one or more board seats and 2) for AIG to abandon the lawsuit to gain Starr International's AIG stock (some 12% all told).

Greenberg has made it clear through various maneuvers and statements that he would like some say at AIG through board participation. More so now that the stock has fallen nearly 50 percent in the past year.

It does not necessarily have to be him but it does have to be directors he approves of. Even if he wanted a seat it is debatable that AIG could elect him with two pending legal matters he faces: the pending state civil suit over what happened at AIG when he was there and the possible Wells notice over the same issue.

Greenberg's second demand should be that the AIG law suit be dropped over the $20 billion (the price before AIG plummeted) in stock. That suit was probably bought by AIG to keep stockholders happy since transferring the stock back to AIG would be a real plus. But the board would have to approve dropping the suit and that would be a touchy situation.

Perhaps today's meeting will result in some good will. But it would most benefit AIG shareholders and the organization itself if it yields something more substantive.

The Big Shareholders Get Martin Sullivan

On May 21, I predicted Martin Sullivan had a maximum of six months to turn the giant that is AIG around, assuming no more write offs and a ratchet up in the stock. I was five months too generous but my shortsightedness was only half my fault. One half was inevitable and the other a closely guarded secret. First, until two weeks ago, Hank Greenberg was the only major shareholder loudly complaining, complaints which the company tended to brush aside as more of the same. But I should have guessed others would join the chorus. A group led by Eli Broad, whose company Greenberg bought, and two other large shareholders, made it clear they wanted change in management and in the board. It took this event and the Board's response to bring the Chairman of AIG out of the closet: Robert Willumstad long has held aspirations to be a CEO and he lobbied for the AIG job when the board was considering hiring a headhunter to find a replacement for Sullivan.

The market's lukewarm response suggests it is not persuaded. Only Mr. Broad responded positively even though his original letter to the board said he did not want a CEO from the board. His response was more for the appointment of Mr. Bollenbach, former CEO of Hilton Hotels, as lead director.

Why are Mr. Willumstad's credentials for the AIG job less than sterling as successful as his career at Citigroup has been? First, as Chairman, he has walked hand in hand with Mr. Sullivan much of the way. So some of Sullivan's failings rub off on him. Secondly, a mantra of Hank Greenberg, which his devotees firmly believe, has always been that at AIG you have to know insurance. Willumstad's statement that the insurance divisions reported to him at Citigroup won't cut it. Third, the notion that he will have a plan for the company by Labor Day is not reassuring to shareholders or anyone else. It bespeaks of how complicated the company is and why another insider could do better. Finally, the company has taken a step back in its much praised reform in corporate governance. Willumstad will be Chairman as well as CEO.

Greenberg's Further Tribulations

A few days after the bombshell from Judge Droney alleged that a phone call from Mr. Greenberg instigated the finite insurance conspiracy, word reached Europe that the Securities and Exchange Commission (SEC) had served a Wells notice on Greenberg. This threatens him with a civil charge primarily for his alleged involvement in the General Re finite insurance case and a situation with Capco Reinsurance Company. Of course, his lawyers--and Greenberg has the best lawyers going--can make a defense against the charges being made. If the SEC staff does not accept this legal refutation, they ask the Commissioners for permission to proceed with the civic proceedings. And very seldom does a Wells notice not go forward.

While the news had a small mention in Europe, it was not really noticed in most of the financial press. Yet there is considerable interest in AIG, more so because of the dramatic drop in the stock and the capital raise. It suggests the focus is on the company not the individual. Whereas in the U.S., Greenberg is such an icon that three years after he resigned, his name and AIG still seem virtually synonymous. Of course, this is true not only because of the high profile legal situation but because he has been aggressive both with AIG and in explaining on televsion and with the print media his views on a variety of matters - from China to the Presidential candidates.

Hank Greenberg's Trials

My first few days in London was swamped with bad news from the U.S., at least for those who are fans of Hank Greenberg, former CEO of AIG. On Monday, word came at three a.m. London time that the judge presiding over the trial of four General Reinsurance executives and former AIG executive Chris Milton (who now works for C.V. Starr), had issued a long commentary on the trial. U.S. District Judge Christopher F. Droney denied defendants their appeal to overturn their convictions and have a new trial. He also said that there was sufficient evidence that Mr. Greenberg had instigated a telephone call that led to the conspiracy to fradulently boost the financials of AIG. This led to the conviction of the five executives. Greenberg's was named in the trial as an unindicted co-conspirator. Interesting enough, executives in London were not aware of this development.

During the three years since Hank Greenberg left AIG he has never faced a trial. I, for one, do not think this time will be any different. Consider the history: first, Greenberg was called a criminal on TV by then Attorney General Eliot Spitzer. And when Spitzer did bring charges against Greenberg and former AIG CFO Howard Smith, as well as separately against AIG, these were civil charges--not criminal. So the very allegation that cost Greenberg his job was not raised again until three years later when Judge Droney made his accusation. True the federal authorities talked about doing something with that charge from time to time. But they did not.

Even though the prosecutor said something after winning the trial about "working up the ladder", I am not convinced they have a scintilla of evidence that would lead them to do so and gain a conviction. Hopefully, this will put this matter to bed once and for all.

Meetings with the London Press

On my second day in London I met with the insurance correspondent for the Financial Times and the London editor for A.M. Best Europe and did a book signing at that most venerable of booksellers--Waterstone's in Leadenhall Market.

Among the top or almost the top question of these journalists: how is Martin Sullivan, AIG's English born CEO, doing and will he survive. My response: He had done exceptionally well in managing the enterprise during a time of difficult transition taking over from an extraordinary CEO that served 37 years. Be it keeping up the morale of employees to assuaging investors to consoling his board to that most important piece of business--settling with the authorities and getting them off AIG's back, he has performed exemplary.

But managing and growing the enterprise is another matter. Generally, he can blame his predecessor for problems for one year, maybe two, but surely not three. The write off of about thirteen billion dollars over the past year, the weakness in the core business and the nearly 50 percent stock drop in the last year to the lowest price in a decade is unacceptable. He can blame Greenberg or extraneous circumstances but stockholders who have lost their shirt won't accept it. In fact, many would like Greenberg back. While the board stands behind him for the moment, there is clearly some uneasiness on that board. One more big write off will end his tenure. And if the stock doesn't turn around with six months, he will be forced out.

And that in itself is a dilemma because an outsider could not run AIG, unless it is broken up. It would take years to understand the complexity of perhaps the world's most complex company. So an insider is absolutely needed. I have a recommendation on who that should be to discuss another day.

Dinner with Financial Industry Executives

Yesterday on my first day in London I spoke at dinner before a group of executives who work in the Canary Wharf Financial Center. While others here say they are not very familiar with AIG or Hank Greenberg, that is certainly not the case with this group. They know AIG well and are fascinated by Greenberg. It was a telling time to meet with them since on that very day a number had closed out their firm's participation in AIG's $20 billion capital raising effort.

This effort, which far exceeded the original goal of $12 billion, was phenomenally successful. When I asked these executives why they participated they said AIG had paid above premium on the placement and they had total confidence in the future of the company.

Ironically, AIG CEO Martin Sullivan is in town as well speaking at a Lehman Brothers Financial Services Conference. But our paths have not yet crossed.

Welcome to my blog

In a few days I will be off to London, Paris and Amsterdam to share stories from my book, "Fallen Giant: The Amazing Story of Hank Greenberg and the History of AIG" with business audiences and book lovers. It will be interesting to hear POVs from European executives on AIG's misfortunes since Greenberg was forced to resign in 2005. I'll also be discussing the future of New York and London as global financial centers - a topic of special interest to both cities.

Join me in this journey. Post questions and observations and I will do my best to bring you answers and insights from markets outside the US.