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AIG’s Benmosche Can’t Push Uncle Sam Around, So Threatens to Quit

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AIG’s CEO Robert Benmosche has displayed extraordinarily arrogance even before he took the job, so his latest stunt, a threat to leave AIG high and dry by quitting a mere three months in, should come as no surprise. Frankly, from the get-go, Benmosche fit the stereotype of a narcissistic top executive, with the extra seasoning of financial service industry “divine right to lofty pay” syndrome. It somehow never occurs to these people that a business on government life support is by definition no longer private enterprise, and other rules, legitimately, apply.

Let’s review Benmosche’s impressive record of overweening contempt for the government, and therefore taxpayers that rescued AIG. To stress the obvious, AIG is nationalized from an economic standpoint. Like Freddie and Fannie, the only reason the government has not taken 100% ownership (aside from the fact that it might generate bad PR) is that the debt would need to be consolidated on the Federal balance sheet.

But even with the expedient fiction of 20% public ownership, do you think any CEO would dare pull the crap Benmosche has if, say, Warren Buffer held an 80% stake? Consider the record:
First, Benmosche started work….with a two week vacation. As we noted at the time:

I am cynical enough to believe that this signal, of having a CEO start his new job by going on holiday, is quite deliberate. We the great unwashed public are being given the message that we should not run Goldman operatives fine upstanding men like Edward Liddy out, because look what sort of commitment to the job we get now.

Second, Benmosche adopted the posture that he, and not his majority shareholder, was in charge. As we noted in our post, “AIG CEO Gives Uncle Sam (and Us) the Finger (Financial Services Industry Arrogance Watch)“:

Tim Duy pointed out this priceless remark from AIG’s new CEO, Robert Benmosch:

Benmosche told employees that he “had the luxury to say to the government, I’m not going to rush to do this. I’m appalled at how much pressure has been put on all of you to just sell it no matter what, because the Fed wants out, or the Treasury wants out. If they want out in a hurry, they shouldn’t have come in in the first place.”

For anyone who followed the rescue, this is a staggering bit of hubris and revisionist history. First, the idea that the government “came in” implies that this was some sort of normal investment process, as opposed to AIG begging the Federal government for a rescue, even though states, not the national government, are the main regulators of insurance business (the AIG Financial Products business was overseen, if you can call it that, by the Office of Thrift Supervision. AIG structured its operation so as to get them as supervisor precisely because they were guaranteed to do next to nothing).

Next, the original deal called for AIG to pay back the money in two years. That inconvenient fact has been airbrushed out of the story Benmosche tells us. AIG made great assurances that the operating units were worth a lot of money and paying back the loans would be no problem. They accepted a high rate of interest give the riskiness of the loans and the desire of the Federal government to keep the heat on AIG. This original deal in theory fit Bagehot’s rule: lend generously, at a penalty rate, against good collateral.

But AIG fooled itself, or maybe just everyone else. Those supposed crown jewels were worth a lot less than AIG thought.Once they had established they would not be permitted to fail, they started retrading the deal. When AIG realized it couldn’t sell some operating units, pronto, suddenly it started complaining the interest rate (I think Libor plus 8 1/2%, forgive me for working from memory) was too high. Oh, and they happened to need more money too, a wee oversight in their initial demand. So the deal was reworked to give them better terms, a bigger commitment, and NOTHING ADDITIONAL was obtained. This was a free concession, a very bad move in deal land.

The government owns 79.9% of AIG. Any private sector owner who had an overwhelming majority interest and got that kind of attitude from a CEO would fire him immediately. But no, we live in a world where arrogant members of the financial services industry engage in looting, dictate terms to the government, and try to rewrite history to make baldfaced lies seem plausible. Why shoudn’t the government pressure AIG? The idea that owners don’t pressure companies (the subtext of this remark) is an absurd misrepresentation. Go talk to the management of any underperforming company owned by a PE or venture capital firm. For the most part, they do not play nice, and would never tolerate Benmoshe’s posturing, and he knows that. He is simply playing the media and the public for fools.

Third, we have the retention bonus fiasco, in which AIG (under Liddy, not Benmosche) had said it needed to pay retention bonuses to certain staff members because they had specific expertise (both technical and knowledge of particular deals and portfolios) which meant it was worth paying them something extra to make sure they stayed at AIG during the unwind. That idea is no doubt offensive to some readers, but is selectively true.

But AIG abused this waiver, and handed out bonuses widely, including to clearly non-mission-critical support staff, which means it is certain they went to non-mission-critical managers too. And did we hear a peep of contrition from Benmosche? No, and it would be easy to look contrite here, since this didn’t happen on his watch.

Third, Benmosche had the temerity and poor judgment to lambaste Cuomo in a public forum, accusing him of things he never did. You do not pick a public fight with someone who has jurisdiction over you, let alone with a campaign of lies. From Bloomberg:

Robert Benmosche, chief executive officer of American International Group Inc., told employees that New York Attorney General Andrew Cuomo was “unbelievably wrong” for drawing attention to bonus recipients….Cuomo subpoenaed AIG in March during a national furor about $165 million in retention bonuses sent after the firm’s bailout and said those who returned the cash wouldn’t have their names published. That month, some employees received death threats and protesters visited the Connecticut homes of two AIG executives.

“What he did is so unbelievably wrong,” Benmosche said during the Aug. 11 remarks, according to a record obtained by Bloomberg. “He doesn’t deserve to be in government, and he surely shouldn’t be the attorney general of the state of New York. What he did is criminal. You don’t create lynch mobs to go out to people’s homes and do the things he did.”

After being approached by Bloomberg yesterday about the remarks, AIG said that Benmosche “regrets his comments regarding Mr. Cuomo and the tone of those comments” and said that Cuomo resisted pressure to release names.

Yves here. This is insufficient as an apology. AIG has still failed to recant the charge that Cuomo or his office leaked names, when frankly it is probably not hard (via public filings, interviews in industry magazines, etc.) to figure out the identities of at least some AIG top brass. And Cuomo has been proven correct in questioning the retention bonuses.

So predictably, this petulant child with serious impulse control problems has now thrown a huge tantrum. Per the Wall Street Journal:

Robert Benmosche has told the board of American International Group Inc. that he is considering stepping down as chief executive of the government-controlled insurer, just three months after taking the job, according to people familiar with the matter.

At a board meeting last week, the strong-willed industry executive told fellow AIG directors that he was “done” but agreed to think it over after other board members reacted with shock, according to the people.

The executive is chafing under constraints imposed by AIG’s government overseers, particularly a recent compensation review by the Obama administration’s pay czar, Kenneth Feinberg, according to the people. AIG, 80% government owned since a rescue last year, is one of the companies under Mr. Feinberg’s purview.

Last week, Mr. Benmosche and other AIG board members met with Mr. Feinberg in New York. During the three-hour meeting, board members discussed difficulties of complying with pay policies and retaining talent at the company. Mr. Benmosche’s frustrations “hit a crescendo,” said a person familiar with the matter. “Bob feels he is in an impossible situation,” the person added. Mr. Benmosche didn’t respond to a request for comment.

AIG has so far not appealed Mr. Feinberg’s decision for other AIG executives, according to a person familiar with the matter.

It isn’t clear whether Mr. Benmosche would actually resign. In his short tenure at AIG, he has developed a reputation for making provocative remarks and ruffling feathers as he seeks to achieve his goals.

He was said to be prepared to step down at least once before, in August, when his own pay package hadn’t yet been formally approved by Mr. Feinberg. His $10.5 million pay package, including cash salary of $3 million, was later finalized; it is the largest compensation package approved under the Treasury Department’s recent curbs on executive pay.

I cannot believe the intransigence here. If this had occurred in, say, the Johnson or Nixon administrations, someone from the officialdom would have read Benmosche the riot act a long time ago, pointing out he knew exactly what he was getting into and how it was far from prudent to cross someone much bigger than you are. But no one in Team Obama has any balls, Benmosche knows it, and is playing this for all it is worth.

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45 comments

  1. Andy T

    Well, he wasn’t the one who accepted the government largesse or got the company in the problems. He’s in there on a rescue/turnaround mission. Either let the guy do his job and attempt a turnaround or leave him alone.

    What would you rather him do? Just get up in front of the troops everyday and talk about how fortunate they all were for their jobs? Mope around humiliated? AIG is big group of employees who were clearly “in the dumps.” Like any team that’s been humiliated or dumped on, the Coach has to lift them up a bit and improve the morale somehow. Getting beat up by the gov’t every week is not going to help anything out at this point…

    This is just one of the many bad side affects of TBTF.

    1. Yves Smith Post author

      Andy,

      I suggest you consult the record. Lee Iacocca behaved completely differently when trying to turn around Chrysler, and clearly showed gratitude for public support. And ALL he got for Chrysler was a debt guarantee! The public OWNS AIG, yet Benmosche is waging full out war with his majority shareholder. You seem unwilling to recognize the facts on the ground.

      There is a world of difference between trying to rally the troops and overweening arrogance.

      1. Andy T

        Well, I don’t see any Lee Iacocca’s hanging out right now wanting the AIG job. Perhaps there’s a slight difference between an “also ran” small car company and a behemoth insurance/financial firm with far flung and complex businesses.

        The point is:

        a) We either accept the fact we’re 80% owners of “independent” firms and let them operate independently; or

        b) We take them on as another division of the government as we unwind the operations.

        There is not good middle ground…as we are witnessing.

        1. Yves Smith Post author

          Andy,

          I have NO idea how the board is conducting its search, and I know personally of someone (insurance industry top exec) who would do a vastly better job for a whole host of reasons (extensive Wall Street/deal contacts, well respected, knows how to play ball with regulators). If I who barely know ANYONE in insurance can think of someone qualified (who I am also certain was not asked), this says the idea that it is that hard to find someone is oversold. The board is looking too narrowly.

          The way both private investors and successful government owners operate is they put in new management and give them strict targets Benmosche defied his marching orders, which was to sell businesses and repay as much of the loans as possible.

          1. Andy T

            Understand that point of view and respect what you’ve said.

            “If” he has truly defied his marching orders, then he should be fired. The fact that he hasn’t been fired suggests that those maybe weren’t really his marching orders after all.

            All of this just points to the fact the government should not be in the business of owning “private” firms at all. Because of the huge SPOTLIGHT on them with the gov’t stake, they will never be able to really act like an “independent” firm. It’s the worst possible situation….

            Peace Yves.

          2. Yves Smith Post author

            Andy,

            Sorry if I seemed snippy with you, that was out of line. I am just appalled by the AIG situation, and am also time stressed, which means I am not taking as much care as I should in crafting my responses.

            I think the government was in a no-win here. The board picked this clown (and it was pretty clear that he intended to push back, ergo the board was at least low grade endorsing his shenanigans). The “oh I am going to fix the businesses and not sell them” was a complete retrade. The government is wedded to this “kinda private” headfake, and has not installed a board with the right headset (which a private owner would have done, pronto).

  2. john bougearel

    Yes, Bensmoche did start out his new job with a bang, a 2 week vacation paid for by you and me, the taxpayer. Not to belabor the point, but the last time I took a new job, I was not given a two week vacation in Europe to start with as a perk paid for by taxpayers.

    Hey, RB, God bless ya, you have been more fortunate than I in procuring perks for your livelihood from taxpayers. Turns out, you are a f-ing “welfare queen” with your $10.5 million pay package from the US govt.

    I say, RB, just take your leave of absence and good riddance, just pray to God you have no gov’t guaranteed golden Parachute (GGGP) to jump ship with.

    If you have a GGGP, well then, I think you should be constrained to remain on board as an indentured servant of the American taxpayer until you have justly earned your GGGP, which hopefully Feinberg has made unpleasantly small. And if you choose to breach contract, well hopefully our weak gov’t has a clause in the contract to make that experience unpleasant too.

    Happy Holidays Dirtbag

    1. DownSouth

      How quickly these guys go from claiming they serve God to believing they are God.

      When I see something like this, it always reminds me of Louis XIV:

      After hearing the account of the disastrous battle of Ramillies, for example, Louis exclaimed: “What! Has God forgotten all I have done for Him?”
      –Pierre Schneider, The World of Watteau

  3. OddLot

    You seem to think he is our slave. Why shouldn’t he quit? Why shouldn’t he insist on being paid? He’s old and already wealthy. He could be playing golf. Do you see a lot of other qualified people offering to run AIG for less?

    It comes down to this: the government shouldn’t have bailed our all these failed traders. Sure, maybe we don’t know what would have happened – systemic risk etc – that doesn’t prove that we aren’t worse off. Now, with the government inseparable from the private economy, there is no end in sight.

    If we were concerned, as taxpayers, about getting looted, then we shouldn’t have been willing to put up so much money.

    1. Yves Smith Post author

      So was Felix Rohatyn when he worked for nothing to rescue New York City, a much more difficult task than Benmosche faces (and other influential people also did a considerable amount of work gratis or for nominal compensation). The greed and lack of noblesse oblige, and the way those further down the food chain have bought into it, is breathtaking.

      He understood the job conditions full well when he accepted, and negotiated his own pay package. The man is a quitter and is trying to shift blame on to others. And you buy his self serving posturing!

      1. Mannwich

        Couldn’t agree more, Yves. This toxic mentality of unaccountability to nobody but ONE’s self is mind boggling but not surprising when you think about it. The foundation for this was built 30 or so years ago. It’s all about me first, last and always, and that mentality has seeped into the Sheeple, which is why we’re all fleecing and raping each other (but it’s “not my fault, just doing my job”) for a few nickels on the floor.

        1. Doug Terpstra

          Thus trickle-down works after all; ‘sewage’ flows downhill. Our core problem is spiritual bankruptcy, with moral rot descending from the head. It’s mourning in America.

    2. SidFinster

      “We” taxpayers were willing to put up the AIG rescue money to bail out Goldman CDS at par? Who is this “we,” of which you speak, Kemosabe?

      This cat is wondering whether this “we” is some kind of human cutesy-talk that usually comes right before the cat gets flea-dipped.

      This feline taxpayer would have either nationalized AIG outright (and forced their counterparties to take a steep haircut) or let them twist.

  4. MIke Farr

    What would I rather have him [Benmoshe] do?

    I would rather have him not lie.
    I would rather he not be rude, crass, but instead behave in a civil manner.
    I would appreciate regular updates on how he has my, the American taxpayers, interest at heart, rather than the bonuses of his cadres.
    I would rather he didn’t grossly misrepresent the situation of the American taxpayers reluctant investment.
    I would rather he do something, anything to signify that he “gets it”.

    I would rather he quit.

  5. Sam

    There is something about these mooks at AIG which makes my blood boil. First Cassano and now this guy.

    The bottomline is: it all depends on how the market behaves. If we have another leg down, what can this loser do except beg for more “loans” from the Treasury.

    1. emca

      Hard to tell if this article is more positive or negative. What it says is that if economic conditions continue to improve and if AIG can pump and eventually sell assets which don’t have a buyer, then it may be able to repay “much” of the government loans it carries.

      I wonder if “much” includes interest?

  6. John Bougearel

    @ OL,

    Taxpayers never consented to being looted, so you are wrong there. The decision to be looted was a congressional decision, and insofar as there was no consensual agreement to said looting, that was an act of rape by congress upon the taxpayer. So go back to your game of golf,

    @ Andy,

    Hey, for $10.5m, why hire me for the so-called “rescue-turnaround mission.” (Divestment mission might be a better term than rescue mission.) I won’t complain, no matter how shitty the job as head of AIG is. And if the gov’t want to use me as a punching bag for $10m/yr I say let them take their best shots.

  7. David Merkel

    This is no surprise. Liddy was the far better pick for running AIG, and he had no goals aside from protecting the taxpayer. Benmosche from the beginning acted as if he could do things on his terms, as if the US Government did not control a majority of AIG.

    We may criticize Geithner, but when he said that he didn’t care what happened to AIG after the government gets paid back, he was on the right track… in that sense, Liddy, in liquidating units was better than Benmosche, who wanted time to turn them around and then sell them, or, let the company grow out of government financing. I mean, if you beg to have terms loosened often enough, it will happen every now and then. The terms are a lot looser now than on the bailout at first.

    Let Benmosche walk. It will not matter appreciably. Anyone with that big of an ego should walk. Good CEOs are confident but not overconfident.

  8. ndk

    I don’t think Liddy was half as bad as Benmosche. He did a lot of ugly things but at least he understood that his basic job was to unwind and end the mess that is AIG. That little part of the job description seems to have been missed entirely by Benmosche.

    Benmosche has come in as a little Napoleon and tried to build himself a little empire out of the husk of the giant. Dude should’ve been canned and/or stuffed a long, long time ago, as soon as he showed these imperialistic tendencies.

    Fire him, before he can quit.

  9. NYT

    Benmoshce also is trying to bring Greenberg back to AIG. Imagine, he wants to bring back an 84 year old crook who cooked the books for years at AIG, defrauded the company of hundreds of millions via CV Starr and set up AIG FP. Unbelievable.

    1. Yves Smith Post author

      I have a pet theory that Benmosche is playing both sides, and Greenberg has made him a better offer……particularly now that Benmosche had gotten a look under the hood.

  10. emca

    Robert Benmosche and Lloyd Blankfein are like bookends holding together a shelf of dilapidated journals containing the trials, tribulations and unspoken collusions of the U.S. banking/finance establishment. On one end we have an unperturbed arrogance in the face of failure and the other an almost giddy sense of righteous do-daring (doing God’s Work was not a quote, but one might surmise as much from claims to be a main cog of “virtuous cycle” and having “social purpose” by getting wealthy creating wealth and jobs so everyone else can also have wealth and spend more money and be happy that Goldman can do such wondrous things – if this sounds like a chapter out of gentle Ben’s “Giant Picture Book on How Money Works”,it ain’t my fault)

    I’ve seen a lot of strange things in my days, so I shouldn’t be grumbling about being saved from the Second Great Depression by people who take a two week vacation the first day they’re hired; I may even pay my library fine…in installments.

  11. chindit13

    On the increasingly long list of people whose demise would cause me not a moment’s sadness, and whose loss would not leave the world worse in any way whatsoever, I’ve got a new entry under the letter “B”.

  12. NYT

    There’s so much thats weird about AIG. When it was bailed out we were told that AIG FP was the disaster and the other subsidiaries were highly profitable and well capitalized.
    But when they (according to TBTF) begged Buffett to buy anything from them and could name his price he demurred.
    Since then nobody has bought any of their supposedly clean subsidiaries.
    If Benmosche goes then they’ll be on their fourth CEO in just over a year. Maybe this is one kitchen that is full of cockroaches

  13. killben

    What is there to say ..

    BE OFF WITH SPEED .. DON’T CHANGE YOUR MIND … AT LEAST THE TAX-PAYER WILL BE SCREWED FOR 3 MIL DOLLARS LESS..

  14. Canucklehead

    Remember back when the country was in peril, society’s best stepped forward and were known as “dollar a year men”…

    Do you think this clown plans on retiring with AIG?

  15. LeeAnne

    WSJ: AIG CEO Robert Benmosche Ready To Quit Over Pay Constraints

    Hey, train the people you have instead of inflating incomes and jacking up the unemployment rate unnecessarily. Its your job to start reducing unemployment.

    http://www.huffingtonpost.com/2009/11/11/wsj-aig-ceo-robert-benmos_n_353312.html

    From: Huffington Post/AP Updated: 11-11-09 08:19 AM

    ‘Benmosche has criticized New York Attorney General Andrew Cuomo as being “incredibly wrong” for drawing attention to $165 million in retention bonuses given to AIG employees. Bloomberg: “What he did is so unbelievably wrong,” Benmosche said during the Aug. 11 remarks, according to a record obtained by Bloomberg. “He doesn’t deserve to be in government, and he surely shouldn’t be the attorney general of the state of New York. What he did is criminal. You don’t create lynch mobs to go out to people’s homes and do the things he did.”

    What Benmosche did isn’t:

    ‘Benmosche spent his first couple of weeks on the job telecommuting from his villa on the Adriatic Sea as he oversaw wine production at his vineyard. The New York Daily News: Wearing flip-flops, khaki shorts and a green polo shirt, the new chief executive of bailed-out insurer American International Group Inc. says he’s getting a lot of work done from his massive villa overlooking the Adriatic. “People criticize me for being on vacation. I actually started work a week before I was actually supposed to.”‘

  16. Mannwich

    I can’t even read the whole post. Gets more sickening by the day. In the meantime, get what you can while can out of the (holy) “market” before the next fiasco. That’s what it’s come down to in this country.

  17. Lee

    I just love it when the CEO’s make the customary “we must have bonuse to retain our ‘talent’” argument. It’s truly priceless: we could –literally — have the company (BOD and senior management) run by chimps and they would — by definition — do no worse. It would only cost a couple of bananas.

    Benmosche doesn’t deserve the dignity of quitting. Tell him to pound sand and fire him.

  18. Siggy

    Benmosche should be fired.

    Find someone from within the company to run the liquidation in a bankruptcy court. Cancel all pending retention bonus payments. If people leave wholesale, let it happen. The principal damage has occurred. The government is entitled to 79.9% of all liquidation proceeds after settling secured claims.

    Given that Goldman is doing so well, consider a claw-back of say 50% of the 100% of face settlement that flowed directly from the orginal $85 billion of aid. That would amount to about $6.5 billion, hardly chump change. It would be fair and is a course of action available within the bankruptcy code. Afterall, it has been reported that the AIGFP’s Risk Officer was attempting to negotiate a 60% haircut to settle contracts with the ‘primary dealer banks’ who directly benefited from the largesse of the Taxapayers.

    As the dust begins to settle begin the prosecutions that should have occurred a year ago!

    Do something like this and you will indeed be doing ‘God’s Work’!

  19. Roberspiere

    “I cannot believe the intransigence here. If this had occurred in, say, the Johnson or Nixon administrations, someone from the officialdom would have read Benmosche the riot act a long time ago, pointing out he knew exactly what he was getting into and how it was far from prudent to cross someone much bigger than you are. But no one in Team Obama has any balls, Benmosche knows it, and is playing this for all it is worth. ”

    Yves: If we had a president who had balls or was not corrupted by money from the financial industry he would had applied RICO to the top banks/bankers. Instead what we have is a president who is laughed at and disrespected by these criminals. To me, Obama will go down in history as one of the worst president.

  20. Hugh

    Benmosche was always a clown from the day he took the job and then went immediately on vacation. He should be fired for incompetence and his compensation withheld for material breach.

  21. GaryD

    ben Mosche is a huge donor to the Democratic party. He won’t be fired until a Republican administration comes to power (and maybe not at that – it’s not like the Repubes are any less corrupt than the Demons). He’s a joke to be sure. The US government is backing a huge chunk of the global insurance industry now, and no-one understands what half of those policies mean. Meanwhile, Hank Greenberg is back picking off all the talent at AIG for his own new company, leaving AIG ful of hacks and office politicians. It’s yet another disaster in the making.

  22. samusan

    Good riddance, I say! And don’t let the door hit him in the ass on the way out. If only we had paid more attention to Marx’s warnings about unchecked capitalism . . .

  23. jabird, Boise, Idaho

    Hey Ben,
    When you pay back the US Treasury Department, you can do whatever you want. Hell, raise grapes from your compost and ferment them in your pool, for all I care. Don’t bite the hand that feeds you, though. You might need that unenployment check before you find a job that actually suits you. LOL

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