I would indeed have lost that bet, as two months before my too-close encounter with spitting-mad camels (who, by the way, crossed my path while simply getting some fresh air and exercise in Rockefeller Center before their next "Christmas Spectacular" performance at Radio City Music Hall), AIG had to throw itself on the mercy of the government to stay in business.
How in the world could such a catastrophe happen to the nation's most prominent insurance company?
Certainly, AIG already had its problems, after being cited in the contingency fee and bid-rigging scandal exposed by New York's attorney general at the time, Eliot Spitzer, and after being charged with using bogus finite reinsurance deals to artificially boost its balance sheet--prompting the unceremonious exit of its longtime kingpin, Maurice "Hank" Greenberg.
But there were warning signs of even bigger trouble ahead this past spring, when Mr. Greenberg--now chairman and chief executive officer of C.V. Starr, once closely affiliated with AIG--emerged from relative seclusion to publicly challenge his successors at the firm.
"AIG is in crisis," Mr. Greenberg wrote in a letter to the board of directors at the company he had built into a global powerhouse, but which was reeling after reporting a first-quarter bottom-line loss of $7.8 billion--thanks in large part to $15.3 billion of subprime mortgage-related investment write-downs.
Analysts at the time suggested that these huge balance sheet hits, driven by the credit crunch, might only be the tip of the iceberg. Boy, were they right!
Meanwhile, Mr. Greenberg questioned the logic of capital-raising and other actions detailed by his successor, CEO Martin J. Sullivan, when the first-quarter loss was announced. But AIG's problems only got worse from there, prompting Mr. Sullivan to step down in mid-June--replaced by the company's chairman, Robert B. Willumstad.
The situation deteriorated rapidly in September, when the revelation that credit default swaps traded via AIG's Financial Products unit to cover those holding subprime mortgage-based securities (as well as speculators who had no actual skin in the game) threatened to bring down the parent organization--perhaps taking the entire financial system and global economy with it.
Washington rode to the rescue, offering $85 billion to bail out the firm in return for a nearly 80 percent equity stake, while naming Edward Liddy, Allstate's former CEO, to run day-to-day operations. The plan was to buy AIG time to sell enough assets to pay off the federal loan and allow the company to stand on its own two feet again.
Whether that plan works long term remains to be seen. AIG had to hit the Fed up for another $37.8 billion in October, before renegotiating the entire loan package in November to get access to as much as $150 billion in federal funds--under far better interest rates and terms than with the initial deal. This came after the carrier reported a third-quarter loss of $24.5 billion.
There was additional fallout from the controversial loan deal, particularly over AIG's hosting of lavish incentive travel for top producers shortly after getting federal bailout funds. While this might have been standard operating procedure before the financial crisis, it was decried as outrageous chutzpah by critics in Congress, and slammed as politically tone-deaf in the media.
There was also harsh criticism from competitors, including Liberty Mutual and ACE, about how AIG's financially sound commercial insurers--allegedly desperate to hold onto business after the damage to its parent's reputation--were cutting prices and thus delaying an expected turn in the soft market. AIG denied doing any such thing, and I challenged the propriety of such bullying on antitrust grounds.
Where will AIG go from here? Will they need more bailout funds? Stay tuned!
