UPDATE 2-AIG's search for new CEO led by director Dammerman

Thu May 28, 2009 5:08pm EDT

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By Lilla Zuill

NEW YORK May 28 (Reuters) - A search for a successor to Edward Liddy, chairman and chief executive of AIG, is being led by board member Dennis Dammerman, according to a source familiar with developments.

The search, which is expected to take no more than a few months, is being undertaken after Liddy, picked by federal officials to run American International Group Inc (AIG.N) at the time of the insurer's bailout last September, said he wants to step down. He made the announcement last week.

Dammerman, a retired vice chairman and chief financial officer of General Electric Co (GE.N), was named to AIG's board last November, also picked by government officials.

He is one of several new directors appointed in recent months. The board is expected to have more new faces soon, with five other directors due to be elected at AIG's annual meeting next month, nominated by trustees of the government's stake of nearly 80 percent of AIG.

An AIG spokeswoman had no comment on Dammerman being appointed to lead the executive search.

Liddy, who took the job for a salary of $1, has recommended to the board that they find two candidates to succeed him, splitting the CEO and chairman roles.

In an interview with Reuters last week, Liddy said he expected the person picked as chairman to be someone familiar with the workings of government, while the CEO post should go to someone willing to commit up to five years to the job.

When Liddy was named AIG CEO last year he was the third person to hold the job in as many months, replacing Robert Willumstad, who succeeded Martin Sullivan in mid-June.

Liddy's eight-month reign at AIG has been marked by two upbraidings he received from lawmakers during Congressional hearings about the company's use of bailout funds, including bonuses paid to executives of a controversial financial products unit.

AIG is in the midst of a massive restructuring, as it tries to sell or spin off both domestic and international assets to raise enough money to pay back about $85 billion borrowed from taxpayers after large losses from derivatives written by AIG Financial Products. (Reporting by Lilla Zuill; editing by Gunna Dickson and Brian Moss)

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