The former AIG boss Hank Greenberg talks to David Banks, revealing his thoughts on the company he headed for 37 years, risk management, and his nemesis Eliot Spitzer
When Hank Greenberg talks, people listen. It has always been the case, but at the age of 84, four years after stepping down as boss of AIG, his thoughts are sought and analysed more than ever. How could AIG, the world’s largest insurance company, descend into such a mess so quickly after his departure? Who was to blame? How much will it cost? Could it happen again?
Greenberg, now chairman and CEO of CV Starr, but AIG’s boss for 37 years, has an opinion on all of this. He describes AIG’s problems, the result of the demise of its credit default swap business, as “a tragedy”.
AIG’s credit default swap book, which Greenberg says was “manageable” during his tenure, changed in subsequent years. “It exploded after I left,” he says. “Before it was manageable – and it was not connected to subprime.”
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But was there anything he could have done to ensure the company was not probe to risky products and investments after his departure? “If I’ve left, there’s nothing I could do,” he says.
“When I was there, AIG had a very good risk management department and it looked at everything; it was company-wide. I haven’t heard a word about them. Where were they when all this happened? How did they let this occur?” Greenberg stops short of passing judgment on the current AIG leadership, but disagrees with their “foolish” strategy of sell-offs to satisfy “short-term” requirements of the taxpayer.
“It’s foolish to sell off assets that were making money because you have nothing to offset the tax-loss carry-forwards. It doesn’t make any sense,” he says. “I strongly think it’s wrong that the strategy of paying back the taxpayer can be achieved by selling off units of AIG. The only way to pay the taxpayer back is to rebuild AIG and to pay it back by earnings.”
He adds: “Selling off units where you get book value or below book value hardly makes any sense. I don’t know why anyone with any understanding would have that as a strategy. I don’t think that’s the way to repay the taxpayer.”
AIG, he says, has been subject to draconian terms imposed by the US Government, which need to be renegotiated.
Greenberg believes that risk committees should become an integral part of every financial services company. The proposal, which takes the concept of risk management several steps further, is supported by others including Joe Plumeri, CEO of Willis. The obstacles to establishing risk committees is finding the right people to do the job and ensuring their work is company-wide, Greenberg says.
“I think the idea should be pursued. The implementation and getting the right people to participate will be the challenge,” he says. “Not just getting bodies but people who have the energy and the interest. The chairman of those committees will be critical, somebody with experience and who understands the need to get that done.”
Ultimately, he says, companies have to understand that risk management is part of any risk business “and insurance is obviously a risk business”.
But what happens when we apply such principles of institutional risk management to AIG? Observers have said AIG was not only complex, but impenetrable to an outsider. Hundreds of subsidiaries around the world, many offshore, meant that the structure became difficult for a regulator to navigate at the best of times.
Does Greenberg believe that a company can become too big? “No, it’s not that a company’s too big, it’s that the management is inadequate,” he says.
David Banks is deputy editor of Global Reinsurance