Being an executive at AIG may not mean never having to say “I’m sorry.” But it certainly seems to mean never having to say, “I’m resigning.”
Yesterday we reported that the head of risk management at AIG, Bob Lewis, was still happily ensconced in his job at the insurance giant despite the obvious and catastrophic failure of AIG to actually manage the risks it was taking. From credit default swaps to securities lending to airline leasing, AIG just plunged headlong into the muck and never bothered to tether itself to hedges that might have provided a lifeline when it started to sink.
Today the Wall Street Journal advances the story, reporting that not only Lewis but most of his team are still holding onto their posts in risk management at AIG. These are the folks who approved the risks that AIG took that led to its collapse. We can’t imagine that this situation will last very long now that this information is getting front page attention in the Journal.
It’s a long and well-written piece which you probably don’t have time to wade through. Here are the highlights.
- Half of the AIG Credit Risk Committee Served For Years. Five of the 10 members of AIG’s risk committee have served for years, led by Bob Lewis.
- Naming Names. Besides Lewis, longtime risk-committee members are Kevin McGinn, chief credit officer and chairman of the committee; Win Neuger, chief executive of AIG Investments; William Dooley, head of AIG’s financial-services division, which includes the financial-products unit that sold the credit-default swaps; and Barbara-Ann Livanou, director of financial institutions in the credit-risk-management department.
- Always Keep The Failures. One of the frustratingly persistent arguments about AIG is that it just has to keep in place the people who helped cause the catastrophe because new talent is just impossible to find. Deborah Cornwall, amanaging director of the Corlund Group, a firm that helps companies evaluate executive candidates, makes this point to the Journal: “Finding new deputies with the right skills could be difficult, particularly given limits to compensation at a government-controlled firm, she said.”
- Blessed CDS trades. The risk committee’s tasks include approving credit-risk policies at AIG and reviewing the credit-risk exposures of AIG’s business units. It blessed AIG’s credit-default swaps. “At a December 2007 conference AIG hosted for investors, Mr. McGinn said that ‘essentially’ every such deal passed through the committee, according to a transcript,” the Journal reports.
- Were They Lying Then Or Are They Lying Now? Back in 2007, AIG was telling investors that its risk management was “a very, very active process” that stress tested the portfolio of the Financial Products groups, ran independent tests and challenged their assumptions. Fast forward to now, and AIG’s Ed Liddy claims the risk management teams “generally were not allowed to go up into the financial-products business.” (This is a shareholder lawsuit just waiting to happen.)