naked capitalism

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.