American International Group Inc. Chief Executive Officer Robert Benmosche said that living wills, designed to help unwind struggling financial firms, may lead to international disputes.
Comparing the process of breaking up a company to a person leaving wealth to heirs, Benmosche said he anticipates fights over the way assets are distributed.
“You bring your kids together and you say, ‘You know, I’ve decided to give this one to you, and this goes to you, and you’re going to get that,’ and all of a sudden the kids say, ‘Well, wait a minute,'” the CEO said today at a conference in New York, where AIG is based. In the case of companies, “these kids are called countries and jurisdictions.”
U.S. regulators this week identified AIG, Prudential Financial Inc. and a unit of General Electric Co. as potential threats to the financial system. The designation is a step toward increasing oversight of the largest non-bank financial firms and preventing future taxpayer bailouts. The government has already labeled the largest banks systemically important and required them to submit living wills.
AIG and Lehman Brothers Holdings Inc. lacked such plans during the 2008 credit crisis. The government allowed Lehman to fail in September of that year, disrupting global markets, then bailed out AIG. The insurer’s rescue protected creditors and eventually involved the commitment of $182.3 billion from taxpayers. The U.S. exited its AIG stake last year at a profit.
Giving the government authority to unwind the biggest financial firms “allows us to avoid the choice of all or nothing — nothing in the case of Lehman Brothers, all in the case of AIG,” Democrat Barney Frank, then a U.S. representative from Massachusetts, said at a 2009 hearing. “Our job is to work together and try to find some other way.”
CEO Endorsement
A year later, Congress passed a law championed by Frank and then-Senator Christopher Dodd of Connecticut that increased federal oversight of the largest financial firms. Benmosche, who became AIG’s CEO in 2009, has welcomed the supervision, saying the federal government can improve discipline in his industry.
“It’s good for our business,” he said today at the conference, hosted by Standard & Poor’s. “The government has decided that they’re going to make sure that we, the government, will not have to stand behind any company.”
Banks including JPMorgan Chase & Co. and Bank of America Corp. face an Oct. 1 deadline for submitting a second round of living wills to regulators. The Federal Deposit Insurance Corp. told lenders that the documents should describe obstacles that might arise from taking the companies apart under the bankruptcy code. Andrew Gray, an FDIC spokesman, declined to comment on Benmosche’s remarks.
Capital Trap
Benmosche, 69, said his company, which has customers in more than 130 countries, already has experience thinking through how it might be dismantled. AIG sold more than $60 billion of assets including non-U.S. life insurers and a consumer lender to help repay its bailout.
Still, the company is concerned about the prospect that “we find ourselves trapped with capital all over the world” amid competing demands from regulators in different jurisdictions, Benmosche said. That’s “far worse” than any charge the company faces from being labeled systemically important, he said.