AIG chairman says board stands by CEO Sullivan

NEW YORK (Reuters) - American International Group Inc's (AIG.N) chairman said on Wednesday the global insurer's board is backing Chief Executive Martin Sullivan despite some anger from investors over two quarters of record losses.

Robert Willumstad told investors packing a staff cafeteria and satellite rooms at the insurer's New York headquarters for AIG's annual shareholder meeting that comments in a Wall Street Journal article expressing concern about Sullivan's leadership had not come from directors.

"No one is pleased with the financial results and we would certainly expect them to improve," Willumstad said.

The quarterly losses had prompted former CEO Maurice "Hank" Greenberg to call on management to explain why it was raising some $17 billion through the sale of common stock, convertibles and hybrid securities -- diluting existing shareholdings -- rather than shedding assets.

Greenberg did not let up after the shareholder meeting, telling Reuters it was the board's job to make sure management was fulfilling its responsibility.

Asked in an interview at his Park Avenue office if AIG management should be replaced, Greenberg, who voted against AIG's board, said the results spoke for themselves.

"I think a lot of change has to be made," he added.

Last week, AIG posted a $7.8 billion net loss, its largest ever, surpassing the $5.3 billion then-record loss the insurer recorded a quarter earlier.

The losses stemmed largely from write-downs of the value of assets linked to subprime investments and Sullivan stressed on Wednesday that many companies were grappling with problems from a meltdown in credit markets, and stressed AIG's write-downs were recorded as unrealized losses, not actual losses.

The Wall Street Journal article had quoted a source it identified as "a person familiar with the board" as saying: "No one -- neither the shareholders nor the board -- is happy with the results."

AIG went ahead with the annual meeting, although Greenberg days earlier had requested a delay to allow shareholders to absorb information about the company's record loss and decide how to react to it.

Greenberg, who ran AIG for almost 40 years, controls about 12 percent of the company's outstanding shares through companies he controls and through a personal stake.

Greenberg was not present at the annual meeting.

Sullivan told investors AIG's capital raising, announced last week to bolster the balance sheet and set to close on Friday, was going "better than expected."

But he also repeatedly acknowledged the frustration of investors, speaking in a subdued, somber tone for much of the meeting -- in contrast to his normally more upbeat public speaking manner.

At one point in the meeting, Sullivan stopped to take a drink of water and made the remark that the "spotlights are very hot today."

A shareholder in the audience quipped: "Should be."

A Briton, Sullivan joined AIG as a teenager and worked his way up through the ranks to be tapped in 2005 as the successor to Greenberg, who had quit amid an accounting scandal.

In keeping with the tradition he has set since becoming CEO about three years ago, Sullivan ended his comments with a quote from British statesman Winston Churchill about how a pessimist sees difficulty in opportunity, while an optimist sees opportunity in difficulty.

Sullivan said he fell into the latter camp and pledged to guide AIG into smoother waters.

"I am acutely aware that you as investors invest in AIG to earn superior returns ... We share your disappointment at the current stock price and we are making every effort to meet and exceed your expectations," he said.

"As difficult as the present business environment is, there are plenty of opportunities, especially for a company with our scale of businesses and geographic diversity -- we will make the most of those opportunities."

He thanked the board for its "guidance and support in these uncharted waters."

AIG shares rose 28 cents, or 0.7 percent, to close at $39.44. The shares are down 32 percent so far this year compared with an 8.4 percent decline in the KBW Insurance index .KIX over the same period.

(Additional reporting by Joe Giannone; Editing by Andre Grenon and Gerald E. McCormick)