Robert Benmosche has already come under a bit of fire for his pay package as the new head of troubled insurance giant American International Group, Inc. (NYSE: AIG).  But critics demanding immediate government repayment for those endless billions of TARP and other Uncle Sam-backed liquidity dollars may have some new issues to quarrel about.  It looks like this new CEO is following at least some of the same notions that founder Hank Greenberg has been adamant about: Don’t sell everything off immediately on the cheap.  The newest reports show that Benmosche is scrapping the sale of its broker-dealer unit called AIG Advisor Group.

Investment News reported yesterday that a memo or letter went out Monday night that Benmosche informed the 6,000 advisors from the three broker dealers would not be sold off.  The group was apparently on the block for somewhere around $200 million, but it seems that Benmosche decided that the group can bring in more cash than that.

The word is that Benmosche sees the AIG Advisor Group as a core to the future of AIG Retirement Services.  The key issue here for the brokers inside the network is that being associated with AIG is not exactly the most popular position.  The key issue for the public is that the public wants to see AIG pay back all the money.

But on repayment of the government money, there is an issue.  Does the top goal need to be to make the company castrate its future by selling off every unit in the immediate future at depressed prices?  Or does AIG have the responsibility  to run the best businesses as best as possible and to sell them off or use funds from operations to repay Uncle Sam through time?  For those wanting AIG to go away and to just pay back what it can immediately without regard to the total tally, then the first scenario is the answer.  For those who want Uncle Sam to get back all of the money through time, then the second scenario is the answer.

There is another reason that Uncle Sam has decided to keep AIG afloat and will allow its CEO to make $7 million.  Any new CEO coming in has nothing to do with AIG’s past.  Any new CEO worth his salt would also be able to make the case that a $400,000.00 or $500,000.00 peak salary based on how much the President makes is ridiculous.  Tally up the President’s real pay package outside of the paycheck.  Add up all those benefits, the free vacation and travel, the being set for life factor, the decorating budget, the free security, and on and on.  This is worth hundreds of tens or millions of dollars, although it has a value which cannot just be quantified in absolute dollars.  But back to Uncle Sam, it is not just the systematic risk issue that AIG still poses.  Uncle Sam decided it will be far cheaper to fund AIG and hope it makes it eventually or close it eventually rather than to have to put AIG on the government balance sheet.

Benmosche is signaling that the best strategy for AIG is for it to work its way through some of these issues.  Benmosche has been credited as one of the key turning and growth strategists for MetLife Inc. (NYSE: MET).  Whether he makes $1.00 or $7 million, he is deciding that Uncle Sam can get paid back more through time if the company can work through this tough time rather than by emasculation via selling itself in pieces on the cheap when the only buyers are vulture buyers and when the total number of possible large buyers is still so tight with capital.

As far as other units, there will be other units punted.  Just not every unit at any price.

JON C. OGG
AUGUST 19, 2009

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