One on One with Edward Liddy, CEO, AIG
Monday, November 10, 2008
|
|
|
|
SUSIE GHARIB: Earlier today I sat down with Edward Liddy. He took over as CEO of AIG seven weeks ago. My first question: how long will it take to make the insurance giant a healthy company again?
EDWARD LIDDY, CEO, AMERICAN INTERNATIONAL GROUP: I think by the end of '09, maybe into 2010 we should be in pretty good shape. It will take awhile for the marketplace to forgive and forget the fact that we did, in fact, lose our way a little by branching out in some businesses that we probably shouldn't have and didn't know that much of. But I think in that, you know, you pick it kind of 18 months plus or minus six months we should be in good shape.
GHARIB: Mr. Liddy, make a case why American taxpayers should feel good about this latest rescue plan.
LIDDY: The taxpayer in this case is being very well cared for. People use this term bailout and it's got kind of a negative implication. But the reality is on the equity that we're getting from the Federal government, we're going to pay $4 billion a year to the taxpayer for that. The debt carries a full market rate of interest. Right now we'll have about $20 billion outstanding, $21 billion. It carries interest at 5 or 6 percent. That's a billion too. The government is going to have an interest in upside in the two asset entities that were two financing entities that we're setting up. The taxpayer is being well cared for and well provided here.
GHARIB: You have a lot of financial issues that you have to deal with over the next couple of months and years. How are you going to pay off these billions of dollars of government loans?
LIDDY: We're going do it by selling some our very best assets. This company has been built over about a 99 year period of time. We have some assets around the globe that are the envy of the world. They couldn't be duplicated. They couldn't be recreated today. The proceeds from those asset sales will pay down that $60 billion. And if we do really well maybe even give us enough money left over that we can call some of the preferred stock.
GHARIB: How difficult is it to find buyers in this down economy?
LIDDY: We probably have 75 to 100 companies that are seriously looking at various of our companies. These are very complicated businesses. In many cases they operate in multiple countries or in multiple positions around the United States. So getting everything just right is really important to us. I think we will be successful in this endeavor.
GHARIB: As you know Hank Greenberg, the former CEO of AIG has been very vocal about how to fix the company. Do you want him to be involved? Can he be of any help to you?
LIDDY: You know, I don't think so. Hank built a great company. But it was really a company that was appropriate for a bygone era. It was highly decentralized, wasn't much of a corporate core, very entrepreneurial. When you get into the kind of trouble that this company is in and the whole worldwide financial system is in, you really need a kind of a different company. So Hank had, I forget what it was, 35 or 37 years at the helm. I think it's time for someone else to do it.
GHARIB: One of the challenges is that you've got to bring in new business. And we know that the insurance business is all about trust. Given that you have got this dark cloud hanging over AIG, how difficult is it for to you write new business? Do customers trust AIG?
LIDDY: We generate a lot of business. People forget, we generated in the third quarter $21 billion of revenue and that was up 7 percent. You know, would it be easier for us if we didn't have this black cloud to use your words hanging overhead? Absolutely. But we are still doing very, very well. If the business is down 5 or 10 percent, pick a number, it is off of a base of new business that is still quit remarkable and we're doing extremely well retaining the business that we have right now. So we've got a very good agency for us out there. We communicate extensively with the brokers who sell our products. In kind of an odd way, with the Federal government's backing we are as strong an insurance company as there is out there right now.
GHARIB: What is the new reaction of your policyholders? Have people been renewing their life policies, their annuities or have they been canceling them?
LIDDY: The retention ratio that we normally experience were about in line with those, we may have dipped down a middle. They said after the middle of September when all of this first became public and on the radar screen of the public. But we've been doing very well in terms of renewal since then particularly on the property casualty side.
GHARIB: Mr. Liddy, what would AIG look like in two years?
LIDDY: First of all there be smaller, it will be very nimble. It will be a company that is focused more on property casualty, that is general insurance, commercial insurance in the United States and around the globe and we'll have a continuing interest in the Asian life operations. So in terms of revenues, maybe we'll be $40 or $45 billion in revenue. That is a big company. Not as large as the roughly $100 billion that we produced in 2007, but a very substantial company.
GHARIB: The government initially rescued AIG because it was considered too big to fail. Is it possible that AIG could still fail?
LIDDY: You know, anything is possible. It's such a big word. The unknown of course is what continues to happen with the capital markets around the globe. I think if you look at the concerted effort that the U.S. government agencies, the Federal Reserve and Treasury in concert with government's all around the world, what everyone is doing to try to bring this financial crisis to some sort of a reasonable conclusion, if that happens, I think we're going to be OK.
GHARIB: Mr. Liddy, thank you so much for your time and good luck to you.
LIDDY: Thank you.
