AIG Names Willumstad CEO After Sullivan Steps Down

American International Group Inc. announced Sunday that its board of directors has named its chairman, Robert B. Willumstad, to the additional position of chief executive officer, succeeding Martin J. Sullivan, who is leaving AIG and its board.

“Martin [Sullivan] successfully led AIG through the crisis it faced when he became CEO in 2005, and he has made significant contributions over the past three years in executing AIG's strategy and building on its global franchise,” said George L. Miles Jr., chairman of the board's Nominating and Corporate Governance Committee, in a statement.

“The board has determined that [Mr. Willumstad's] broad managerial and financial services experience makes him the right person to lead AIG through today's turbulent markets, drive further organizational change and rebuild shareholder value in the years ahead,” Mr. Miles added.

“On behalf of the board and the entire organization, I want to thank Martin Sullivan for his extraordinary dedication and service to AIG for over 35 years. We all wish him well in his future endeavors,” he concluded.

Meanwhile, Mr. Willumstad said he is “honored by the opportunity to lead AIG at this important time.” He said that “although conditions in the credit markets continue to create significant challenges in several areas of the business, AIG has great people throughout the organization and an unrivaled global franchise with tremendous long-term growth potential.”

He added that “in the coming months, we will conduct a thorough strategic and operational review of AIG's businesses and their performance. The board and I recognize that results over the past two quarters have been unacceptable, but we are confident in AIG's future. We are determined to get the organization back on track as quickly as possible and ensure it is well positioned for future success.”

Mr. Willumstad, 62, has been AIG's chairman since November 2006. He is the co-founder of Brysam Global Partners, a New York-based private equity investment firm focused on emerging market investments in the financial services sector.

The change at the top for AIG “does not come as a large surprise, given the extremely disappointing results in recent quarters…,” said Alain Karaoglan, an analyst for Bank of America, in a note to investors.

“As new CEO, Mr. Willumstad will likely face a number of initial challenges as he stabilizes the business and takes steps to mitigate risk,” he added. “Beyond the financials, it is going to take a long time to change the culture built over the past 40 years.”

However, Mr. Karaoglan judges the new CEO to be “well-qualified,” given his “significant experience managing a large financial services organization as former president and [chief operating officer] of Citigroup” as well as his familiarity with AIG given his recent tenure as the company's chairman.

However, that doesn't mean the job confronting Mr. Willumstad will be easy, he hastened to add.

“A meaningful array of issues faces the company,” he said in his note. “The new CEO will have to take stock of the various operations that comprise AIG and make possibly difficult decisions. Since Mr. Willumstad is almost an outsider, he may be willing to take a fresh look at operations…”

However, concluded Mr. Karaoglan, “the reality is that AIG's problems existed well before Mr. Sullivan became CEO. The consequences of the leverage and risk-taking were only felt now.”

He said Bank of America would maintain AIG's “neutral” rating. “We expect the company to de-lever[age] its operations and dial down the risks, resulting in lower…[returns on equity],” he said. “There could be uncertainty in the near term as the company is cleaned up, with the potential for additional capital raising and write-downs.”

Andrew Kligerman, managing director at UBS Investment Research, added that “before AIG rebounds, we think investors will need to see more than a new CEO–such as solid execution.” He cited a number of challenges, including the following:

o An investigation by the U.S. Securities and Exchange Commission into AIG's “fair value valuation”–particularly its “multi-sector [collateralized debt obligation] exposures–an area of 'material weakness' in internal controls.”

o “Credit performance at AIG Capital Markets and in insurance investment portfolios.”

o “The outlook for general insurance premium and loss ratio trends, which were weaker than we anticipated in the past three quarters…”

Mr. Willumstad resigned in 2005 as president and chief operating officer of Citigroup Inc., where he was responsible for all of the company's businesses and also served as a board member.

Previously, Mr. Willumstad was chairman and CEO of the Global Consumer Group at Citigroup, where he was responsible for all of its global consumer businesses–including credit cards, consumer finance and retail banking.

Prior to the formation of Citigroup in 1998 from the merger of Citicorp and Travelers Group, he was chairman and CEO of Travelers Group Consumer Financial Services. He joined CitiFinancial (then Commercial Credit) in 1987.

Earlier in his career, he spent 20 years at Chemical Bank in operations, retail banking and computer systems. He is a member of the board of directors of S.C. Johnson & Son Inc., as well as a trustee of Adelphi University.

The AIG board also named Stephen F. Bollenbach as its lead independent director.

“AIG is fortunate to have a world-class financial services executive on its board who can immediately step into the CEO role and successfully lead AIG at this critical juncture,” Mr. Bollenbach said, in a statement. “The board has great confidence in Bob Willumstad's leadership and his ability to restore AIG to its historic levels of performance.”