Too Big to Fail [92]
Cassano did remain on a consulting contract, at the rate of $1 million a month, but Sullivan and others continued to worry about the defection of their staff. With Cassano shunted aside and the FP group already reporting a $5 billion loss, there was constant speculation that FP’s top producers would quickly depart. William Dooley, who replaced Cassano, went to Sullivan with a request: “We need to put together a retention program or we’re going to lose the team.”
Sullivan appreciated the scope of the problem. Because AIG’s employees were paid a percent of profits—and the firm had just recorded such a huge loss—“the likelihood of these guys getting paid out anything is zero going forward,” as he told the compensation committee. “It’s not like it’s a bad quarter; they can’t make it back next quarter or next year.” For most FP employees it would make more sense to start over elsewhere than to stay in place, he told the board. (In a way, ironically enough, FP’s compensation package better aligned the interests of the employees with shareholders than most traders on Wall Street, who were paid based on the performance of their own book rather than on the profits of the entire firm.)
In early March, AIG’s board, after requiring Sullivan to redraft the proposed retention program more than once, approved a plan that would pay out $165 million in 2009 and $235 million in 2010. At the time, it hardly seemed like a decision that anyone outside AIG would care about—let alone give rise to the political nightmare that would result in censure, death threats, and a mad scramble on Capitol Hill to undo the bonuses.
In May, AIG reported dismal results for the first quarter, a $9.1 billion write-down on credit derivatives and a $7.8 billion loss—its largest ever. Standard & Poor’s responded by cutting its rating on the company by one notch, to AA minus. Four days later, on May 12, the Wall Street Journal reported that management at one of AIG’s most profitable units, the aircraft-leasing business International Lease Finance Corp., was pushing for a split from the parent company through either a sale or a spin-off.
Hank Greenberg, meanwhile, who had just turned eighty-three years old, was urging AIG to postpone its annual meeting, pointing to the poor quarterly performance and the effort to raise $7.5 billion in capital. “I am as concerned as millions of other investors as I watch the deterioration of a great company,” Greenberg wrote in a letter made public. “The company is in crisis.”
In private, other large AIG shareholders had also begun campaigning for changes. Two days before the annual meeting on May 14, 2008, a fax arrived at Willumstad’s office at Brysam—a letter from Eli Broad, a former AIG director who had sold his giant annuities business, SunAmerica, to AIG in 1998 for $18 billion in stock, and a close business associate of Greenberg’s. Joining Broad in the missive were two influential fund managers, Bill Miller of Legg Mason Capital Management and Shelby Davis of Davis Selected Advisers. The group, which controlled roughly 4 percent of AIG’s shares, wanted a meeting to discuss “steps that can be taken to improve senior management and restore credibility.”
On the following evening, Willumstad and another AIG director, Morris Off it, went to Broad’s apartment at the Sherry-Netherland hotel on Fifth Avenue to meet with the three investors. Joining them was Chris Davis, Shelby’s son, a portfolio manager at his firm. Sitting in his expansive living room, with dramatic views of Central Park and the city skyline, Broad quickly launched into a list of complaints about Sullivan and the company’s performance.
After hearing him out briefly, Willumstad interrupted him. “Listen, before you go too far, I just have to be very clear. We are in the middle of raising capital, so I cannot disclose to you anything we haven’t told everyone else. We’re happy to listen and to try to answer any questions.” From then on the evening was awkward and uncomfortable for all parties involved, as Willumstad and Off it could say little more than that