Greenberg: AIG Crisis Not My Fault

WASHINGTON--Former American International Group Chairman Maurice "Hank" Greenberg defended his stewardship of the company from afar yesterday, telling a House oversight committee in written testimony that the firm's involvement in the disastrous derivatives only began to "explode" after he left the company in 2005.

He also said that AIG's taking an $85 billion bailout loan from the government represented a bad deal for AIG and its shareholders, and that more value would have been realized by filing for bankruptcy.

"Regrettably, Mr. Greenberg has told the committee that he is too ill to appear today to answer questions," Rep. Henry Waxman, chairman of the House Oversight and Government Reform Committee, said in convening a hearing on conditions that led to AIG's need for a taxpayer bailout.

In his written testimony, Mr. Greenberg said AIG's financial products unit "reportedly wrote as many credit default swaps on collateralized debt obligations in the nine months following my departure as it had written in the entire previous seven years combined."

Moreover, he said, unlike what had occurred during his regime, "the majority of the CDS that AIGFP wrote in the nine months after I retired were reportedly exposed to subprime mortgages."

"By contrast, only a handful of the CDS written over the entire prior seven years had any subprime exposure at all," he argued.

He also blasted the bailout deal, saying that in order to service the debt incurred through the loan from the Federal Reserve Board, "AIG will have no choice but to engage in a fire sale of profitable assets."

Second, the equity component of the deal is unnecessary, he said. "AIG has more than $1 trillion in assets, including key AIG assets that already act as security for the $85 billion loan facility."

He said "it was not necessary to wipe out virtually all of the shareholder value held by AIG's millions of shareholders, including tens of thousands of employees and many more pensioners and other Americans on fixed incomes."

Mr. Greenberg wrote that "those millions of Americans could have fared better if AIG had filed for bankruptcy protection, since they would at least have had the chance of recouping value on their investments in AIG over the longer term."

He said AIG's problems occurred because the "risk controls my team and I put into place were weakened after my retirement."

For example, he said, "it is my understanding that the weekly meetings we used to conduct to review all AIG's investments and risks were eliminated." These meetings kept the CEO abreast of AIGFP's credit exposure, he said.

Moreover, he said the problem created by the larger exposure to CDS "may have been aggravated" by the fact that the new exposure "appears to have been entirely or substantially unhedged."

He drew these conclusions based on what he said is "published data from AIG."

Specifically, he said AIG net notional exposure to multisector CDOs as of June 30, 2008 amounted to $80.3 billion, of which $57.8 billion contained subprime collateral.

The mark-to-market loss on this portfolio at that date amounted to $24.8 billion, of which $21 billion related to securities containing subprime mortgage collateral, he said.

The total mark-to-market loss on the AIGFP portfolio as of June 30 was $25.9 billion, he said.