Greenberg, Benmosche, And the Soul of AIG

| About: American International (AIG)

In an interview with Bloomberg earlier this week, Maurice Greenberg, former CEO of AIG, stated that selling off units of AIG was weakening the firm, and that the sale of Nan Shan in particular wasn’t a good idea. Greenberg knows AIG better than anyone, and may well be right in the long run. But the broadly perceived motivation for the Nan Shan deal-- AIG’s desire to “pay off the government”-- is incorrect. The proceeds of the firm’s sale of ALICO to MetLife and its IPO of Hong Kong-based AIA have sufficed to pay down the outstanding credit line owed to the New York Fed as part of AIG’s announced restructuring plan. At that point in time AIG has nothing more to pay off, as the Treasury will become a 92% shareholder in the firm.

AIG’s exit from Taiwan would seem to be motivated by the same reason that other insurers – including Aegon and British insurer Prudential PLC -- have exited the island. Taiwan has more rigorous accounting standards for interest rate assumptions, meaning that doing business there is more capital intensive than doing business elsewhere. However, world accounting standards will become more like those of Taiwan in years to come.

Another thing to take into account is that insurance industry of mainland China has drawn heavily on Taiwan for executive leadership and best practices. AIG has already staged a retreat from influence and positioning in China by ceding control over AIA, and divestiture of its remaining 33% stake in would carry this process even further. AIG was founded in China, and Greenberg understands that the company’s roots there are important to it. So an exit from Nan Shan represents a further weakening of that bond, and may be ill-considered from a strategic perspective. Greenberg may have a point.

But, when all is said and done, Treasury -- as a representative of American taxpayers -- is the majority shareholder, not Greenberg, and taxpayers don’t want to own AIG. Treasury wants to strengthen AIG’s balance sheet to get an initial IPO rolling in early 2010, and Nan Shan is being sold as part of that process. If Greenberg wants to buy some AIG, I’m not aware of anything that will stop him from doing so.

Meanwhile, concerns about the impact of current CEO Bob Benmosche’s health on the IPO continue to swirl. Benmosche is correct to try to downplay them. He has done a great job protecting the firm, focusing on letting its team do its job, and building momentum and morale. But if the fate of an investment of this size rests on the shoulders of one man, the taxpayer is in trouble indeed.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.