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AIG’s new chief executive Bob Willumstad has a lot to mull over as he steps into leading a company with record losses and a stock price that has been sliced in half. One question is whether his best move may be to break up the company.
Like General Electric, American International Group is remarkable for its breadth, with a $110 billion empire that stretches from aircraft leasing to esoteric lines of insurance. It did fine when the units could draw on the parent’s AAA credit rating but, as the creditworthiness has deteriorated, so has the argument for keeping the insurance and financial services giant together.
Internally, there are already some signs of discontent with the status quo. The head of its International Lease Finance Corp. unit, Steven Udvar-Hazy, is certainly not happy with the higher costs that came his way as the credit rating dropped. The blogosphere has also started buzzing about a break-up as the rating agencies have downgraded AIG’s debt rating.
But the issue is also a philosophical one. The major selling point of a conglomerate-style company is that any one blow can be easily absorbed, given the breadth of its operations. Instead, some wonder if AIG’s size prompted it to make bigger bets than it should—resulting in consecutive losses totaling $13 billion over the past two quarters.
Hank Greenberg was an unusual leader in his ability to keep track of even the furthest reaches of his empire (in part, of course, because he built it). Sullivan appears to have lacked that ability. Among other things, he arguably took his eye off his company’s core business (actual underwriting!) to dive into the once-sexy realm of financial products tied to subprime mortgages. The result: $20 billion of write-downs while some other parts of the business were allowed to languish.
Willumstad, a former Citigroup president, knows all about the challenges of dealing with sprawling financial-services giants. Then again, some argue that his old employer should be broken up, too.
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