AIG’s former CEO Maurice “Hank” Greenberg has indicated that he is ready to testify regarding AIG’s transaction with Berkshire Hathaway’s General Re group in 2000. The transaction in question was orchestrated by General Re in a manner that allowed AIG to inflate its loss reserves by $500 million. Mr. Greenberg was never charged with a crime but prosecutors identified him as an unindicted co-conspirator and he refused to testify citing his fifth amendment right against self incrimination. Now that the statute of limitations has apparently expired, Mr. Greenberg is willing to provide testimony in the case. Read this article for more details.
General Re, a Berkshire Hathaway subsidiary, has reached a $92 million settlement with the federal government which will allow the firm to avoid prosecution for its role in an accounting fraud involving AIG. The Wall Street Journal reports that the settlement also includes corporate governance changes that will require Berkshire Hathaway’s Chief Financial Officer to attend meetings of General Re’s audit committee and mandates that General Re appoint an independent director. Read this article for more details.
Warren Buffett is not one to deny a friendly helping hand to companies in financial distress — at a price, of course! The Wall Street Journal reported today that a subsidiary of Berkshire Hathaway signed “cut-through endorsements” with AIG and XL Capital when they were struggling last year due to impaired credit ratings. Cut-through endorsements directly protect the buyer of a policy by providing backup coverage in cases where the primary insurer defaults on its obligations. Read this article for more details.
I found a recent article by Carol Loomis regarding AIG’s continuing troubles to be quite interesting. As most Berkshire Hathaway shareholders know, Carol Loomis is a longtime friend of Warren Buffett and also edits his annual letter each year. Read this post for more details.
Anyone reading this who is a taxpayer in the United States is, in effect, a shareholder of AIG due to the Federal Government’s infusion of $173.3 billion in bailouts over the past six months. These bailout funds have resulted in the near total nationalization of AIG with the Federal Government owning nearly 80% of the business. Putting aside the question of whether the government was correct to bail out AIG in the first place, it is very important to look at the potential problems that now exist as a result of government ownership and the political, rather than economic, calculations driving the operations of the company. Read this post for one viewpoint regarding the bonus fury at AIG.