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National Coverage News & Markets
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ed the seeds of the financial dis130 countries and serving more aster that already threatens to than 70 million customers. cost taxpayers $180 billion. But in 2005, amid an investigaGreenberg’s creation more than tion by then New York Attorney two decades ago of a financial General Eliot Spitzer, Greenberg products unit, which has triggered was forced out by AIG’s board. the bulk of AIG’s massive losses, is He had refused to cooperate with their main focus. the company’s Credit default own probe. ‘The bottom line is swaps, or CDS, He is still that Hank Greenberg held by AIG fighting civil wandered out of the Financial charges being very safe, wellProducts have pursued by been the biggest New York capitalized world of driver of AIG’s state, as well insurance into the losses, which as a string of surreal world of have exceeded other lawsuits credit default swaps $100 billion over outstanding the past five where you can create between him quarters. and AIG. endless amount of “The bottom But detracrisk.’ line is that Hank tors say he Greenberg wancould face a dered out of the very safe, welltough time saving face given the capitalized world of insurance latest loss revelations since the into the surreal world of credit former chieftain was sole archidefault swaps where you can cretect of AIG Financial Products — ate endless amount of risk,” said the business that poured itself Christopher Whalen, co-founder into the CDS market, and ultiof Institutional Risk Analytics, mately cost AIG so much. which provides analysis and ratThat business “brought AIG to ings to banks. its knees,” said Mark Keenan, an Greenberg has sought to disinsurance partner with law firm tance himself from the losses at Anderson Kill & Olick. AIG, suing his former company for AIG itself is clear that misrepresenting the risk of losses Greenberg should bear some of from credit default swaps held by the responsibility. AIG Financial Products. In the “AIG FP from the way it opersuit, which was filed in late ated to its compensation were all February, he claims to have been set up under Greenberg, and AIG misled into buying stock at inflatwas well into it by the time he ed prices. He said he paid more left,” said Nicholas Ashooh, a taxes than he should have because spokesman for AIG. of the inflated prices, which Greenberg, a World War II vetcaused him to overstate his eran who helped to liberate the income. Dachau concentration camp, set Greenberg and his lawyer could up the financial products unit in not be reached for comment. 1987 as he was seeking new business avenues to diversify his Damage Control growing empire against the highs Greenberg oversaw AIG’s and lows that are a trademark of growth into a company spanning global insurance markets. N2 | INSURANCE JOURNAL-NATIONAL REGION March 9, 2009
controls were not maintained at AIG Financial Products after he left, and that he would have done more to hedge the risks and head off losses. Gerry Pasciucco, a former Morgan Stanley executive who is now winding down the unit, told Reuters last month that everyone with the benefit of “20/20 hindsight” would have reacted differently. The reality is no one did, under Maurice ‘Hank’ Greenberg Greenberg, or later, A Plan That he said. Backfired “The overwhelming majority of Greenberg’s diversification plan paid off handsomely at first. AIG FP’s books were hedged, but some remote risks were not,” said AIG Financial Products contributed $5 billion to the insurer’s Pasciucco. AIG withdrew from guaranteeprofits from the time it was ing multi-sector asset-backed formed in 1987 through 2004, Greenberg’s last full year as CEO. securities — the area that has triggered AIG’s worst losses — But the risks also grew expoabout eight months after nentially as the unit, driven by a Greenberg’s departure. thirst for greater profits, racked To be sure, some experts say up guarantees on CDS worth a neither Greenberg nor AIG could total of about $450 billion. have predicted Cassano boasted the extent of the in 2007 that the ‘AIG FP from the U.S. housing company did not way it operated to market bust, or expect to realize its compensation the prolonged even $1 in losses were all set up recession. on the portfolio. “The business “AIG jumped under Greenberg, of insuring credinto the high-beta and AIG was well it is good, and world of credit into it by the time there is a valid default swaps he left.’ market, but it when there was a was left unregulow default envilated and unsupervised. Credit ronment,” said Whalen. “But insurance was the blind area,” when the market goes bad it all said David Kotok, chief investgoes bad, and with the kind of ment officer at Cumberland exposure that AIG wrote, it is Advisors. “We are now paying the just rancid.” Greenberg, in written testimo- price.” IJ ny to a U.S. congressional hearing Copyright 2009 Reuters last October, argued that risk He hired a group of traders that had worked together at Drexel Burnham. He would later promote Joseph Cassano to lead the unit, which became a soughtafter employer since it offered to share a third of all its profits with staff. Cassano is now at the center of U.S. and UK probes into what happened at AIG Financial Products.
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