CEO Gaffe of the Week: AIG & Starr International
Jan 11th 2013 10:58AM
Updated Jan 11th 2013 11:55AM
Last year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!
This week, I turn my attention to current AIG CEO Robert Benmosche, and former AIG CEO and current Starr International CEO Maurice Greenberg.
The dunce cap
The credit crisis and big recession of 2008-2009 brought the need for massive reform and countless bailouts in the finance, insurance, and even auto industries. General Motors needed an injection of $50 billion just to keep its operations running during the height of the recession . Similarly, large money center banks like Bank of America and Citigroup both received a total of $45 billion in preferred stock investments from the U.S. government in the form of TARP loans .
However, the creme de la creme of bailouts was AIG, which ultimately required $182 billion worth of loans and assistance and saw the U.S. government take up to a 92% direct stake in AIG's stock. Amazingly enough, through asset sales in AIG's mortgage-backed Maiden Lane III portfolio -- which went to financial institutions like Bank of America, Citigroup, and Credit Suisse among others -- as well as selling its stake in AIA Group and numerous stock offerings, AIG has freed itself entirely of its debt obligation, all while the U.S. government and taxpayers actually turned a profit!
Instead of the expected gratitude you might expect from a financial insurer that was on the brink of failure and had littered its MBS portfolio with toxic investments, AIG CEO Robert Benmosche earlier this week contemplated joining former CEO Maurice Greenberg in a $25 billion shareholder lawsuit against the hand that once fed it -- the U.S. government.
The reasoning behind the lawsuit was not that AIG didn't need the assistance, because it clearly did, but that the government deprived shareholders of tens of billions of dollars as it charged high interest rates and funneled much of AIG's assets to its competitors. In addition, the lawsuit claims the government violated the Fifth Amendment by taking AIG's assets for public use without compensation.
Thankfully, Benmosche and AIG's board decided not to join Greenberg and his new company, Starr International, in the lawsuit, but even contemplating the lawsuit may have caused quite a bit of PR damage in the interim.
To the corner, Mr. Greenberg
The true wag of my finger goes not to current CEO Robert Benmosche, but to his predecessor and still large AIG stakeholder, Maurice Greenberg, who's coercive efforts to get AIG board members to join the shareholders lawsuit seem like nothing more than a bitter attempt to recoup some of his bad investment.
Consider for a moment that some (not all) of AIG's toxic MBSes were purchased under Greenberg's tenure, so he's just as much to blame for AIG's shortcoming as anybody. Instead, the former AIG head is dragging out a lawsuit that could ultimately cost taxpayers millions, if not more. According to The New York Times, Starr International requested 16 million pages of documents from the U.S. Justice Department last year, forcing the agency to put nearly a dozen lawyers on the case and wasting millions of taxpayer's dollars.
If this isn't a case of ingratitude, then I'm not sure what is! Greenberg made some poor decisions as AIG's CEO, and he should live with them, plain and simple. The U.S government's terms weren't out of line considering it lent a whopping $182 billion to AIG, and to even consider suing the hand that fed you seems like a low blow. For shame, Mr. Greenberg.
Do you have a CEO you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may see your suggestion in the spotlight.
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The article CEO Gaffe of the Week: AIG & Starr International originally appeared on Fool.com.Fool contributor Sean Williams owns shares of Bank of America, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of AIG, Bank of America, and Citigroup, as well as calls on AIG. Motley Fool newsletter services have recommended buying shares of AIG and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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