AIG CEO Edward Liddy: Interview transcript

Marketplace Staff Oct 22, 2008


Kai Ryssdal: Ed Liddy, welcome to the program.

Ed Liddy: Thank you very much.

Ryssdal: You’ve been at AIG now, sir, about a month. I’d love your take on what you think went wrong to get you this job.

Ed Liddy: I have been here about a month. It seems like it’s been multiple years. I think two things Kai. First, I think that we, AIG, kind of branched out into some projects that were outside our core. They were more financial products and less insurance products, and we did it in, in, in a muscular way. So we got a lot of these financially engineered products. That we may have been able to survive, but with the credit downturn, the severe credit downturn, a combination of those two has just really brought us to our knees.

So we’ve had to put a lot of collateral out for these various products, and that’s a check. We have to keep writing checks, and we simply ran out of cash. That’s why we needed the help of the federal government to continue in business today.

Ryssdal: And you did get that help. It was about $85 billion that first loan. According to my research you’ve drawn down about $70 billion worth of that. How are you going to pay it back?

Ed Liddy: Well, I’ll tell you what we’re going to do? We’re going to emerge from this crisis a stronger company. We’re going to drop back to what has historically been our core, which is our property casualty operations in the United States, and what’s known as foreign general in Europe. These are big businesses. They generate about $40 billion a year in revenue.

But all of the other assets that we have, except for our foreign life business, we’d like to try to maintain a majority stake in that, but everything else that we have, and we have some wonderful, wonderful assets, we’re going to sell to pay down that loan.

Ryssdal: Are you worried at all about selling into a down economy?

Ed Liddy: You know I, I am. I think that’s partially offset by the fact that some of these assets simply don’t come along in, in the lifetime of a CEO. You know they, you couldn’t recreate them. You couldn’t build them from scratch if you wanted to. So I think that they, they really are, they fit the definition of a premier asset. I would much rather be selling these assets in a more stable environment you know where the capital markets were a little bit more fluid and, and a little bit more solid. But you have the market that you have, so you have to deal with it.

Ryssdal: I have to ask you though, sir, if they are premier assets as you say, why are you selling them?

Ed Liddy: Well we have to generate enough cash to pay back that $70 billion, that $70 billion loan.

Ryssdal: One of the things about insurance is that it, maybe more than any other business, is built on trust. I pay you a certain premium. You eventually cover me when times go bad for me. How does the consumer in the market trust AIG now?

Ed Liddy: Well, our insurance subsidiaries are absolutely rock solid. There’s no issue with any of those. These are the, the unregulated or non-regulated financial products that have caused us our difficulties. But the variable annuities and the fixed annuities and the auto insurance, or the commercial insurance, we are rock solid in that area.

And the NAIC, the National Association of Insurance Commissioners, who regulate our business, have come out and said that. That’s not our issue. Our issue is products outside that core.

Ryssdal: What about some of the other things that you guys were involved with, though? Credit default swaps and derivatives that got you in so much trouble? Is there a role for those in the AIG of the future?

Ed Liddy: There is no role for those. Those have been shut down, and that’s really what I was referring to earlier. Those are the kinds of products that are, are not our core. They are not insurance products. They are riskier products. We went far too large in them and the contracts, the concept we had with respect to those products was not what the market had. So it’s really brought us to our knees. That business has been shut down. It will not be a part of us going forward.

Ryssdal: This is kind of a subjective question, but what’s it like to be the CEO of a company that is, almost by definition, too big to fail? Does that take some of the pressure off of you?

Ed Liddy: You know, I don’t think it does at all. We’re the . . . the people of AIG have not caused this mess, this difficulty. But the people of AIG will, in fact, solve it. And I tend to think of it in those terms.

We can emerge from this. We’ll be a stronger company for it. We’ll be a powerful company. We’ll be a much more nimble company. I think we can, in fact, emerge from this, and we can pay back every single penny that the, that the taxpayers have loaned us.

Ryssdal: Obviously it’s been a tough month or two for this company. The last two weeks, though, have been especially rough. You’ve gotten a lot of press for some of the spending that you guys have done on, on vacation trips, and junkets, and tourism, and sales, and those sorts of things.

Congress has been questioning very seriously how you’ve been spending your money. Do you understand why people are upset about that?

Ed Liddy: Oh we understand it perfectly why people are upset, and you know we’re embarrassed by it, and I apologize to people for it. Let me say this, and it’s not an excuse. This is a large place. We do business in over 130 countries. We have over $100 billion in revenue. You know think of the battleship. You simply can’t bring it to a halt quickly enough.

Now, we have stopped all the kinds of activities that you just mentioned. We’ve absolutely shut them down. It was one of the first things that we did, in fact, when I, when I arrived here, so I think, I think we’re in pretty good shape.

Most of the activity that’s being focused on, you know they’re, they’re not activities that involved AIG employees. They are sales conferences for, for independent agents who have sold our products. We’ve stopped those kinds of activities, but it takes a while to do all that.

Ryssdal: Is there a chance that AIG might still fail after all of this?

Ed Liddy: You know never is a big word. I, I think we’ve got it well in, well in hand. The federal government’s idea was to help AIG emerge from this crisis in an orderly way, and I think we’re doing exactly that. So thanks to the life preserver that they’ve thrown us, I think we’ve made good progress.
And I think the chances are very, very remote. I think high probability we will emerge from this in very good shape.

Ryssdal: What’s your sense of obligation then to the group of people who are now your biggest shareholder, the American taxpayer?

Ed Liddy: Well I want to repay them. We, the people of AIG, we want to repay them every single penny that we have to borrow. We want to repay them their interest, and then in the current structure coming out of this, the government will own 80 percent of the company. Whether that continues going forward or not, I, I don’t know.

I think the government approach to financial companies in distress, if you look at it, it certainly has evolved over time from when Fannie and Freddie first got in trouble to what they’ve done for the banks. So whether we’re able to participate in, in some of the, the more contemporary versions of what they’ve done to save companies or not remains to be seen.

Ryssdal: You are obviously the CEO of this company, but it’s sort of changing times. The Federal Reserve Bank of New York has offices in your building, and I understand you consult with the Fed fairly regularly. What, what are those conversations like?

Ed Liddy: You know it’s a, it’s a very good relationship. I refer to it as a, as a partnership. Anytime somebody is on the, on the hook to loan you $85 billion, guess what, they want to know what’s going on. So we are very transparent with the Fed. We share with them kind of where we are on our asset dispositions, on our strategy, if we put in place any programs to, to make sure that we can keep some of our most valued employees. We share all that with the Federal Reserve.

Ryssdal: How close are you now to making that first asset sale?

Ed Liddy: You know we just announced which assets were for sale two weeks ago, so that process takes a while. We know the marketplace is very keenly interested in it. So what we’re doing, we want to move that process expeditiously, but we don’t want to do it so quickly that we lose any value.

We’ve had good expressions of interest and we’re responding to those expressions of interest. We’re preparing the, what’s known as the offering memorandums, making sure the information is complete, updating it through the third quarter, which we’ll report here in a couple of weeks, and then we should be able to show some pretty good progress in that area.

Ryssdal: Henry Paulson, a guy you’ve known for a while I imagine, calls you six or eight weeks ago and says, “Listen, Ed, have I got a deal for you. We need you to run AIG.” What was your first thought?

Ed Liddy: My first thought was I was very happy doing what I was, what I was doing. I had retired from Allstate. I was involved with a, a very fine private equity firm by the name of Clayton, Dubilier, but you know when you get a couple of calls like that and, and people say can you help us, the country needs it, the financial system needs it, you have two choices. You can either stay on the sidelines and be an interested observer, or you can try to get in the game and help. I chose to do the latter.

Ryssdal: How long is it going to take before AIG is a completely healthy functioning company?

Ed Liddy: You know I would, I would think by the end of next year. The assets that we have to sale we would, have to sell, we’d like to sell sooner rather than, than later, and I think we can make real progress paying down that debt early in mid, mid part of next year or so.

So I think by the end of 2009 you’ll, you’ll see AIG emerge as a, as a different entity, but a very healthy entity.

Ryssdal: Step back for me for a minute, Mr. Liddy, and look at this larger economic crisis we’re having. What’s the lesson from the failure of AIG?

Ed Liddy: I, I think there’s no one silver bullet that would explain that, Kai. I think it’s a variety of things. It’s, it’s too much leverage in the system. It’s probably not the right kinds of regulation around the mortgage markets. It might be, you know were the rating agencies proficient enough at rating some of these things?

I just think it’s, it’s a whole host of things. But I would say with respect to AIG, when a company moves away from its core, the thing which it really knows well, and begins to branch out into something else, it usually spells trouble. And in AIG’s case, that’s exactly what happened.

Ryssdal: Now what do you do? I mean after you sell all these assets and you start paying back the government, how do you run this company?

Ed Liddy: Well we’ll have a . . . as I said, we’ll have a great company that will do business in about 90 countries around the globe. It will generate over $40 billion in revenue. It’s our core business. We’ve been in the property casualty and foreign general business. It was the, basically the beginning of our company.

So we’re . . . we’re going to be very successful. We’ll be a good company going forward. People will be proud to work at AIG going forward, and they’ll be proud to invest in AIG going forward.

Ryssdal: Will they be proud and satisfied and happy to invest and work there knowing it’s a smaller company?

Ed Liddy: You know, I think so. Life . . . life can be somewhat relative, and a $40 billion enterprise that does business in, you know, many of the countries around the globe and can generate $4 [billion] or $5 billion in net income, that’s a very formidable enterprise.

Is it as large as the $100 billion in revenue that we once had? No. But it still is an organization that very much is fit to fight and can compete in the marketplaces that we’re in.

Ryssdal: Where’s the culpability here for this mess that we find ourselves in, because people out there want to blame somebody.

Ed Liddy: Yeah, you know, I’m, I’m not about, Kai . . . I’m not about looking backwards. I am all about the future and trying to solve the problem. There will come a point in time when probably others smarter than me can begin to answer that question. Right now all of my energies go towards the future, towards seizing the future for this company and our employees.

Ryssdal: Ed Liddy, the CEO of AIG. Mr. Liddy, thanks a lot for your time.

Ed Liddy: Thank you.

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