To the lengthening list of fallen executives, add one more: Maurice "Hank" Greenberg, legendary CEO of American International Group, was forced to step down March 14 as investigators look at whether the company used complex insurance transactions to improperly pad its bottom line.
Greenberg's departure, after a four-decade reign that turned AIG from a sleepy also-ran into the world's biggest insurer, immediately raises questions about whether the company can stay on top -- or whether shareholders will suffer, as they have in so many corporate scandals. In the first five trading sessions after the Greenberg announcement, the stock fell by 7.6%. Nonetheless, shareholders held on to most of the outsized gains earned under Greenberg. Average annual returns for the past decade have been 15.5% versus 11% for the Standard & Poor's 500.
Despite the initial jolt, AIG shares did not go into the freefall seen in many of the corporate scandals of the past few years. "I think it's going to get over this crisis," said Neil A. Doherty, professor of insurance and risk management at Wharton. "In many ways, it's been a spectacularly successful company." AIG "is going to address these issues," he added. "They are going to have the core strengths they had before."
As to Greenberg's departure as CEO, Andrew Metrick, professor of finance at Wharton, suggests that it was time "for AIG to have new leadership. But whether this means all their problems are behind them ... I think it's too early to say that.... There's just a lot we don't know about this very complicated financial institution, and we will have to see what comes out over the next 12 months under the new leadership.... There is a lot of uncertainty about whether there are other shoes to drop."
State and federal officials are looking into a "finite reinsurance" transaction four years ago between AIG and General Re Corp.
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