AIG CEO Benmosche’s credibility rests on AIA deal

June 11, 2010

By Richard Beales and Rob Cox

Prudential’s bosses have taken the heat for the UK insurer’s failed bid for American International Group’s Asian unit, AIA. But Bob Benmosche, AIG’s strong-willed chief executive, tried to steamroll the deal through a lukewarm board. He is respected as an insurance executive. But his future credibility — and AIG’s ability to repay U.S. taxpayers in full — depends on how he goes about fixing the AIA mess.

Benmosche can’t help that Pru executives oversold their ability to close the original $35.5 billion deal for AIA. And on the face of it, the sale was an attractive way for AIG to repay a big chunk of taxpayers’ cash faster than would have been possible with the initial public offering of AIA that AIG was also considering. That’s a valid objective given the running criticism of the bailout, most recently on Thursday from the Congressional Oversight Panel.

Yet with AIG’s board split down the middle — the original deal was only approved by the CEO’s vote — execution risk should have been front of mind. The concern that then snowballed among Pru shareholders was exacerbated by Mark Wilson, AIA’s chief executive, who badmouthed the deal to investors. That doesn’t cast Wilson in the best light, but it also suggests Benmosche failed to convince his own managers of the deal’s merits.

When Pru tried reducing the deal price to just over $30 billion, Benmosche wanted to push ahead — but AIG’s board voted overwhelmingly against him. Right or wrong, some directors and advisers may have feared Pru still would not persuade its shareholders to back the deal. Others may have preferred the IPO plan all along, even though floating AIA at a valuation higher than Pru’s revised offer is no slam dunk. Either way, near-unanimous board opposition is bad for a CEO’s standing.

Benmosche deserves praise for his management of AIG’s insurance businesses, where morale and profits are recovering. But the politics and dollars of bailouts matter too — and cashing out of AIA is central to that. The company’s message is that there are options beyond the abandoned Pru deal and an IPO. Perhaps those could include sales of stakes in, or even pieces of, AIA.

Despite Chairman Harvey Golub’s public show of support for the AIG boss, there’s evidence of tension between the CEO and his board and some managers. Benmosche needs to make the next AIA exit plan work — or his own may be called for.

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