AIG chief under pressure as investor dissent grows

AIG Chief Executive Martin Sullivan, at the Old Trafford Stadium in Manchester, northern England, April 6, 2006.

NEW YORK (Reuters) - Investors in American International Group Inc (AIG.N), angry about the billions of dollars lost by the world's largest insurer over the last two quarters, are increasingly pinning the blame on Chief Executive Martin Sullivan.

While AIG and its board have so far expressed support for Sullivan, investors and analysts question why more was not done to cut the company's holding of assets linked to subprime mortgage investments, and many ultimately hold Sullivan responsible.

"The company is constantly trying to dodge the issue by saying some of these securities in question took place (under the former chief executive)," said Robert Youngman, president of New York-based Griffin Asset Management, adding that does little to help investors grasp why AIG did not do more to hedge against losses.

AIG over the last two quarters has consecutively posted record losses, largely as a result of $20 billion in write-downs to the value of credit default swaps linked to subprime mortgage investments.

"It would appear that Marty (Sullivan) either delegated his responsibility or failed to take an active role in overseeing, and solving the problem," said Youngman, who once worked at AIG and remains a shareholder. He said he would expect Sullivan to be replaced, if another quarter of serious losses materializes.

Youngman isn't alone in taking Sullivan, who became chief executive three years ago, to task. Some of the giant insurer's largest shareholders have in recent weeks outlined their gripes in letters to AIG's board -- including concern over the direction set by current management.

Former Chief Executive Maurice "Hank" Greenberg in a letter to the board last month said the company he led for nearly 40 years was in "crisis", and details of a second letter, sent around the same time, emerged late Sunday in a report by the Wall Street Journal.

"Clearly pressure is mounting," said Cliff Gallant, a Keefe, Bruyette & Woods analyst who covers AIG, adding that the board's patience could be worn thin if enough investors revolt.

Greenberg controls roughly 12 percent of AIG stake through shares he personally owns, those held in family trusts, and by companies that he runs. He left AIG in 2005, after allegations of financial misconduct were laid against him and the company by then-New York Attorney General Eliot Spitzer and the U.S. Securities and Exchange Commission.

The second investor group includes former AIG director Eli Broad, Shelby Davis of Davis Selected Advisers and Legg Mason Capital Management's Bill Miller and owns about 4 percent of outstanding shares, according to the Journal report.

Youngman said he had not directly been contacted by other disgruntled shareholders but was sympathetic to some of their views. Investors in the second letter cited a "staggering breakdown of risk controls" and "an unequivocal loss of investor confidence," according to the report.

Greenberg does not appear to be working with the group behind the second letter, and it is not clear if he could add his support. A spokesman for Greenberg on Monday said he is not currently "getting involved" in the matter.

AIG, in pledging continued support for Sullivan, points to a list of accomplishments over his three-year tenure, including strong financial results posted in 2006, and early 2007, before the subprime mortgage crisis took root.

The company has said it expects some of the write-downs to result in gains, once credit market conditions improve.

Some investors agree, and as a result, are willing to give Sullivan some slack.

"I think there is some expectation as the year progresses that they may see some modest benefit from mark ups," said Keith Wirtz, chief investment officer at Fifth Third Asset Management, which has been buying AIG stock since last month, and now owns about 1.6 million shares.

"He (Sullivan) at least deserves the balance of this year," said Wirtz.

Still, others see AIG's stock as a risky bet, and say investor fears could be eased by a management shuffle.

"There are some risks that come in the ordinary course of business, but when you take extraordinary risks in the course of ordinary business and really don't have an understanding of the potential loss of capital," that is a problem, said David Dreman, chief investment officer and founder of Dreman Value Management, speaking generally of the subprime mortgage crisis.

Financial-services firms have taken more than $300 billion in write-downs and credit-related losses since last year as a result of the subprime crisis.

Dreman said many executives, including Charles Prince, former chief executive of Citigroup (C.N), and more recently, G. Kennedy Thompson, who had been chief at Wachovia Corp WB.N, have already had to fall on their swords. He added that he does not see why AIG should be any different.

"I just don't think I'd want to buy (shares of) companies like that until management was cleaned up."

Dreman sold off his AIG shares about a year ago, when the stock was roughly double its current level.

The shares fell as low as $32.87 on Monday, and closed down 0.4 percent at $33.49, an 11-year low. The stock hit its all-time closing high above $101 in December 2000.

(Editing by Gary Hill)