Too Big to Fail [93]
Even in the face of mounting shareholder pressure to have him removed, Sullivan appeared to be in good spirits before the annual meeting that morning. He worked the conference room on the eighth floor of the AIG tower, shaking hands and greeting shareholders. He chatted amiably with one investor about a 2–0 win by soccer’s Manchester United over Wigan Athletic the previous Sunday, which enabled the team to nip Chelsea for the league championship on the last day of the season. The victory was a feather in Sullivan’s and AIG’s caps: The company had paid Manchester United $100 million to have its logo on the players’ shirts for four seasons. Apart from that, there was little else to mollify disgruntled shareholders. The headline in the Wall Street Journal the next day observed trenchantly: “AIG Offers Empathy, Little Else.”
Despite Willumstad and Off it’s assurances about the company’s efforts to increase its liquidity, the decision to try to raise new capital only led to further clashes. JP Morgan and Citigroup were spearheading the push for AIG to take additional write-downs and to disclose them. By this time, AIG had been hit by calls for an additional $10 billion in new collateral on the swaps it had sold to Goldman and others. The JP Morgan bankers knew what was being said on Wall Street and they knew how considerably others’ valuations disagreed with AIG’s own. To the bankers, the finance executives at AIG were amateurs. Not a single one impressed them—not Sullivan, not Steven J. Bensinger, the firm’s CFO.
The contempt was mutual; AIG executives were dismayed by the arrogance of the JP Morgan team. They and the bankers at Citi had been entrusted with one of the biggest capital-raising efforts ever and were being paid handsomely for their services: more than $80 million for each bank. Their high-handedness in piously informing AIG how its assets should be valued achieved little but to provoke the insurers to dig in their heels.
JP Morgan persisted in asking AIG for a disclosure. On a Sunday afternoon conference call about the capital effort, Sullivan himself came on the line, sounding less cheerful than usual. “Look, we are going to put our pencils down right now. I think either you need to get on board with us or we will have to move on without you.”
The JP Morgan bankers hung up and discussed their options. Steve Black, who had dialed in from South Carolina, was deputized to call Sullivan back. “Okay, you want us to put our pencils down. We will. But then we are not going to participate in the capital raise, and when people ask us why we’re dropping out, we will have to tell them that we had a disagreement, that there are different views on the potential losses on some of your assets.”
In the face of that threat, AIG had no choice but to cave; raising the money was critical, and it could not afford to have a battle with its main banker become public. AIG executives were further irritated when the dispute over valuations was disclosed and JP Morgan did not want to have its name attached to it; the filing refers to “another national financial services firm.”
At a large conference table at Simpson Thacher, just moments after AIG’s directors voted Willumstad as the new CEO, he addressed the board.
He stressed that one of the first things that needed to be done was to make peace with Greenberg. He was AIG’s largest shareholder, controlling 12 percent of the company, and his various battles with the firm were a costly distraction. “He’ll be linked to the company forever anyway,” Willumstad added.
After the board meeting, Willumstad returned to his apartment on the Upper East Side. He dialed Hank Greenberg’s number with some trepidation; Greenberg never made anything easy. It took some time to get him on the phone.
“Hank? Hi, this is Bob Willumstad. I wanted to let you know that the board has just met and decided to replace Martin—”
“Good riddance,” Greenberg muttered.
“—and a release is going to go out tomorrow