AIG after Sullivan

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Falling on one’s sword is fast becoming the fashion for America’s finance bosses. Martin Sullivan, declared the “right guy” to run American International Group only a month ago, was ousted as chief executive over the weekend. The man who expressed such confidence in him, chairman Bob Willumstad, will take over.

Mr Sullivan’s ouster is largely a gesture. Sure, firing the CEO is a radical step. Taken together with Mr Willumstad’s immediate launch of a strategic review, it looks like AIG’s board means business. The new CEO also brings considerable expertise and seems to enjoy a better relationship with Hank Greenberg, hopefully cooling the former AIG head’s distracting feud with the company.

The credibility gap Mr Willumstad must bridge is wide, however. Here is a company that repurchased 76m shares in 2007 and claimed it had up to $19.5bn in excess capital in February – not long before it went out and raised an extra $20bn due to the damage inflicted by mounting credit and mortgage losses. The bizarre decision to raise the dividend even as the capital raising was announced only added to the sense of confusion.

Weighing against Mr Willumstad is that fact that he is not “new blood”. While he can claim that AIG posted good numbers for much of his tenure as chairman, the understanding and management of its risk exposure – the heart of any insurance firm – clearly was lacking under the present board’s watch. The decision to combine the posts of chairman and chief executive is also discouraging. Meanwhile, those hoping for a break-up should bear in mind Mr Willumstad’s role in the formation of Citigroup, another troubled financial conglomerate. For all the drama of Mr Sullivan’s departure, investors are still awaiting real action.

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