U.S. looks to Liddy for safe hands on AIG

By Bill Rigby

NEW YORK (Reuters) - The U.S. government is betting former Allstate chief Edward M. Liddy is the safest pair of hands to oversee the dismantling of American International Group Inc and prevent further unraveling of the world's stressed financial system.

Liddy, 62, was the architect of Allstate Corp's spin-off from the Sears, Roebuck retailing empire in the 1990s and went on to lead the insurer through earthquakes, hurricanes and the World Trade Center attack, successfully holding up its "You're in good hands" slogan.

The quiet but well-connected Liddy, who retired from Allstate earlier this year, is not afraid of making tough decisions. He decimated Allstate's ranks to save costs and firmly pushed the old-fashioned insurer in the direction of the Internet.

He got the nod to run AIG late on Tuesday, as part of an $85 billion Federal Reserve-sponsored bailout -- which effectively makes the New York insurer government property -- with a mandate to sell off what parts he can.

"He (Liddy) is a very experienced and seasoned professional in the insurance industry," said Larry Coats, a co-manager of the Oak Value Fund, which has in the past invested in large capitalization insurance stocks.

"There's obviously much work to do at AIG, but he has significant experience and would appear to be up to the task," he added. Coats' fund, based in Durham, North Carolina, does not currently hold AIG or Allstate shares.

Liddy has not yet been confirmed as AIG's new chief, but a source told Reuters that he would soon take the helm of the insurer, which has been brought to its knees by overwhelming claims on guarantees it underwrote on bad mortgage investments.

His job will be to "conduct asset sales on an orderly basis" in order to raise funds to repay the Fed's loan, according to AIG's description of the situation.

That firmly puts AIG's profitable aircraft leasing unit International Lease Finance Corp, and many of its insurance underwriting operations, on the sale block.

BIG BAILOUT

Late on Tuesday, the U.S. Federal Reserve engineered a rescue for AIG, lending it $85 billion to keep it liquid and taking an almost 80 percent stake in the company in return.

Shares of AIG, which was once the world's most valuable insurer, fell 41 percent to $2.22 on the New York Stock Exchange.

AIG's bailout follows government rescues for giant mortgage finance companies Fannie Mae and Freddie Mac, the collapse of Lehman Brothers Holdings Inc and the hurried sale of Merrill Lynch & Co Inc, which have sent Wall Street and the global financial system near the brink of failure.

The choice of Liddy, a New Jersey native with an MBA from George Washington University, was not a great surprise to industry insiders. Although largely unknown outside insurance circles, he is formidably connected to some of the most powerful U.S. companies and personalities.

He has been a director of manufacturing conglomerate 3M Co since 2000 and of Wall Street firm Goldman Sachs Group Inc since 2003. Last year he added a seat on Boeing Co's board to his portfolio.