WASHINGTON BUREAU — Elizabeth Warren today called American International Group Inc. (NYSE:AIG) a “corporate Frankenstein,” and analysts questioned how well the company can do without government help.
Elizabeth Warren, chairman of the Congressional Oversight Panel on the Troubled Asset Relief Program, appeared along with the analysts, AIG executives and others at a panel hearing on AIG, New York.
Warren, a Harvard bankruptcy law professor who once was famous in the insurance industry mainly for quantifying the effects of health problems on home mortgage foreclosure rates, praised the House and Senate for developing financial services bills that “create a much better process for monitoring systemically important firms and winding them down if they falter — a process designed precisely as a response to the wildly expensive and unruly bailouts of companies like AIG.”
AIG is “a conglomeration of banking and insurance and investment interests that defied regulatory oversight and that would not have fit easily into the existing bankruptcy structure,” Warren said.
“The rescue of the American International Group was so extraordinary that it bypassed the entire legal process of bankruptcy,” Warren said. “In saving AIG, the government invented a new process out of whole cloth, a parallel set of rules devised and executed for the benefit of only one company.”
At an earlier TARP Congressional Oversight Panel hearing, Warren suggested that giant financial institutions need the corporate equivalent of “living wills,” or arrangements for shutting them down if they become incapacitated.
THE VIEW FROM AIG
AIG President Robert Benmosche testified at today’s hearing that AIG is on a “clear path” to repaying the government and “remaking itself into a more streamlined and focused company.”
“We are redefining our strategy, restoring our financial strength, strengthening our key businesses, bolstering our corporate governance, instilling a focus on performance management, and making strategic hires to ensure that our remaining businesses thrive,” Benmosche said.
AIG has become less reliant on government aid and is better able to tap the capital markets, Benmosche said.
AIG also is working hard to sell its AIA and Alico units, for a total of $51 billion, and the insurance businesses that AIG is keeping are doing better, Benmosche said.
An annuity unit, SunAmerica Financial Group, reported $1.1 billion in operating income in the first quarter, up from an operating loss of $160 million in the first quarter of 2009, thanks to an increase in investment income and expansion of its distribution network, Benmosche said.
“The business has continued to stabilize and will continue to pay a key role in AIG’s diversification of income,” he said.
THE ANALYSTS WEIGH IN
Rodney Clark, a managing director at Standard & Poor’s Rating Services, New York, and Clifford Gallant, head of property and casualty research at Keefe, Bruyette and Woods, New York, said they have concerns about how well AIG will do when the government starts to pull out.
The capital of AIG’s insurance subsidiaries is “generally insulated by state insurance laws and regulations” from problems at the parent company and non-insurance affiliates, Clark said.