American International Group, Inc. (AIG) Was Not Prepared For A Crisis; Former Lawyer

Bloomberg reports that troubled insurer American International Group, Inc. (NYSE: AIG) was not prepared for the financial crisis, which saw it accept a $182.3 billion bailout from the U.S. government. The view was made by Anastasia Kelly, AIG’s former general counsel.

Speaking at a corporate law conference at Georgetown University Law Center in Washington on Friday, Kelly said the insurer did not have the infrastructure to call upon to respond to a financial crisis. According to Kelly, because the insurer was so diverse and global, there was no one in charge of the situation.

AIG, which was hit hard by the financial crisis, agreed in September 2008 to be bailed-out by the U.S. government. The U.S. government acquired a majority stake in the insurer. Kelly left AIG in December in protest of pay-limits imposed by the government. She received a $3 million severance package from AIG. She had joined AIG in back in 2006 to help the insurer recover from investigations carried out by Eliot Spitzer, former New York Attorney General. In January 2009, she was promoted to the position of Vice Chairman, with control over the firm’s public relations and human resources department.

According to Kelly, the insurer was not prepared when Maurice “Hank” Greenberg, former CEO, departed from the firm in 2005. She said, “Hank didn’t plan to leave when he left, so the normal transition when a CEO leaves that you hope happens when a CEO leaves didn’t happen.” Greenberg, who ran AIG for 38 years exited amid regulatory probes by Eliot Spitzer. Kelly further said that she has a great deal of respect for the business Greenberg built. Once the world’s largest insurer, AIG had operations in 100 countries.

Martin Sullivan, who succeeded Greenberg at the firm, told analysts in 2007 that the insurer would be able to manage losses tied to the housing crisis. Sullivan even started a $5 billion share buyback program in 2007, which depleted funds at the company. It is obvious that even people at the top did not know the extent of damage the housing crisis had on AIG.

AIG received a $85 billion bail-out package initially from the Fed in 2008. However, the bail-out was expanded three times after demands for additional collaterals from the insurer’s trading partners. Robert Willumstad, who was the CEO of AIG when it was bailed-out in 2008, submitted a written testimony to a congressional committee in October 2008. In his testimony, Willumstad wrote, “Through the first week of September, we believed AIG could weather the difficulties in the financial markets.”