Willumstad followed Beattie and Cohen into his office and hit the speakerphone button.
“Can you hang on a minute?” Geithner said after greeting him. “Secretary Paulson is going to pick up.”
“Okay,” Willumstad said, adding, “I’ve got Dick Beattie and Rodgin Cohen sitting here with me.”
“So, you’ve seen the new agreement, right?” Geithner asked after Paulson joined in. “We want to know that you are going to accept the terms. We need an answer back from you soon, because trading is going to start in Asia.”
In the back of his own mind, Geithner had a nagging worry:
It was no coincidence, though, that the government’s terms had so much in common with what the private sector had been considering. For one thing, they had used many of the same advisers. And in the current political environment, there was safety in being able to say that AIG was only getting what the market had been willing—or almost willing—to offer.
“Obviously, we have a board meeting in fifteen minutes, and I’m prepared to present it there,” Willumstad said.
“Tim, it’s Dick,” Beattie said, jumping in. “I just want to be clear that you know that you shouldn’t assume just because you stepped in that the board will approve this. We’ve got a fiduciary duty to our shareholders, so it is going to be complicated.”
Beattie, playing hardball, had effectively implied a threat that AIG might be better off filing for Chapter 11 bankruptcy than taking the government’s deal.
Geithner didn’t flinch. “This is the only proposal you’re going to get,” he tersely replied, and then added, “There’s one other condition… .”
Paulson, interrupting, said, “The condition is that we’re going to replace you, Bob.”
Beattie and Cohen looked at Willumstad in embarrassed silence.
“O … kay,” Willumstad said. “If that’s what you want.”
“We’re going to bring in a new CEO,” Paulson said matter-of-factly. “He’ll be showing up tomorrow.”
Willumstad had had no illusions that a government rescue would mean anything other than his ouster, but he was stunned by the speed of events. The government had just made its offer moments ago—and it had already completed an executive search to find his successor?
“Should I still be here?” Willumstad asked, confused about how to proceed.
“Yeah, we would appreciate whatever cooperation and help you can offer,” Paulson replied.
“Is it okay if I ask who it is?”
“It’s Ed Liddy,” Paulson said.
For a moment, Willumstad wracked his memory. “Who the hell is Ed Liddy?” Beattie whispered, but Cohen only shrugged his shoulders.
“Ed just retired recently as the CEO of Allstate,” Paulson interjected, realizing they had no idea who he was.
After the call, Willumstad slumped in his chair, sighed, and then looked over at Beattie and laughed.
“Well, you’re wrong,” he said. “I won’t be working for the federal government after all.”
The directors of AIG were already gathered in the boardroom when Willumstad and the advisers made their entrance. Willumstad wasted no time on preliminaries.
“We are faced with two bad choices,” he began. “File for bankruptcy tomorrow morning, or take the Fed’s deal tonight.” He explained the terms of the deal and told them that Blackstone would come in with bankruptcy advisers to discuss the merits of that route.
And then he told them his personal news.
“I’m going to be replaced,” he said quietly. “Ed Liddy is going to take my place.”
“Ed Liddy?” asked Virginia Rometty.
“Yeah, he’s Allstate,” Willumstad explained.
“I’ve known him for fifteen years,” she said. A top executive with IBM, Rometty had once headed the sales group for the computer company’s division that catered to the insurance and financial industries. “I wouldn’t have thought Ed would have been the guy.”
“I know Ed Liddy!” James Orr chimed in. Orr had been chief executive of Unum, a Maine insurer that had fought off an effort by Allstate to grab market share from the company in the long-term disability category it dominated. “If we were looking for a CEO of this company, not only wouldn’t he have been on the short list, he wouldn’t have been on the long list!”
“Well, that’s one of the decisions you’ll have to digest,” Willumstad said calmly, and turned the meeting over to Cohen.
Martin Feldstein, an AIG director and former economic adviser to President Ronald Reagan, couldn’t believe that the government—a Republican administration—was going to be effectively buying a stake in a private business.
Rodgin Cohen, reminding the board that they had a fiduciary duty not only to shareholders but to bondholders as well, pressed for a bankruptcy.
“You should consider all these things,” Beattie said. “Just because it’s the Fed doesn’t mean you have to accept
