Daily Flog: Deep inside AIG -- the profits of doom

On the heels of yesterday's stunning bailout (N.Y. Times story) of giant insurer American International Group, you'll be reading stories about how the billionaire status of its former CEO (and still major shareholder) Maurice "Hank" Greenberg has taken a beating because of the recent precipitous drop in AIG's stock price.

Like yesterday's laughable New York Post story by James Covert:

As the company he built teeters on the brink, former American International Group boss Hank Greenberg can't insure his own financial health.

The 83-year-old billionaire, who left AIG in 2005 amid an accounting scandal, has lost more than $6 billion in the past week, and is on the verge of losing his billionaire status altogether as AIG shares continue their free-fall.

Save your sympathy. What you're unlikely to read is that Greenberg, a pal of Henry Kissinger's, already bailed himself out before the Fed bailed out AIG. By the way, Greenberg didn't just "leave" AIG's boardroom "amid" a scandal. He was forced out and then was formally accused of fraud by New York Attorney General Eliot Spitzer. (See CNN's May 2005 story for details.)

I know it's hackneyed to say "profits of doom," but it is what it is. (Oops, I did it again.)

This is how the other half of 1 percent of the richest Americans live:

SEC records reveal an incredible (only to us commoners) string of transactions since Greenberg's ouster in which he and his personally controlled entities realized hundreds of millions of dollars from selling their AIG stock.

Let's assume that Hammerin' Hank didn't know that his company's bubble was about to burst.

AIG is still (or was still, until you bought it) Greenberg's company despite his being forced out of the CEO job in 2005 because of alleged shenanigans for which he's still under investigation by the SEC and New York's current attorney general. It's still his company because he still controls the biggest chunk of shares in AIG, which is the world's biggest insurer.

As of July 15, 2008, three years after his ouster, one of Greenberg's other companies, his privately owned Starr International, still held 228 million shares of AIG. So it looks as if he really has taken a beating to his multibillionaire status. For instance, at 9:12 this morning, AIG's share price had fallen to $2.17. Last year at this time it was trading at about $70 a share.

But ever since his ouster, he and Starr have been selling gigantic chunks of shares for astounding proceeds, upwards of $20 million a day — day after day during some months.

Now, I'm not saying that this is unusual behavior on Wall Street. In fact, this kind of schmuckery is the norm, but it's almost never pointed out in mainstream news outlets.

Here's a timeline that you probably won't see elsewhere in the initial coverage of your latest bailout of rich people and their companies:

June 2007: AIG sues ex-CEO Greenberg and Greenberg's ex-CFO for $1 billion in damages "stemming from accounting troubles" on Hammerin' Hank's watch. MarketWatch's Peg Brickley writes at the time:

[The complaint] was filed in a lawsuit started in Delaware's Court of Chancery by AIG shareholders angered at the high cost of dealing with regulatory probes of sham transactions, financial restatements and securities class actions, who felt AIG executives should be held to account.

August 2007: AIG calls its exposure to subprime debt "minimal."

September 2007: Greenberg and his Starr International continue their immense sell-off of AIG stock, which is still priced at $66 or $67 a share.

The following figures are from SEC filings for Greenberg's transactions, through Starr, of AIG's shares. (See Yahoo's compilation.) They're listed by day, shares of AIG owned by Greenberg's Starr International and sold to stupid investors, and sale proceeds — I call them profits because Greenberg had paid either comparatively little or nothing to acquire those shares):

Sept. 4: 400,000 AIG shares sold, $26.4 million profit.

Sept. 5: 900 shares sold, $59,000 profit

Sept. 18: 400,000 shares sold, $26.6 million profit

Sept. 19: 800,000 shares sold, $53.9 million profit

Sept. 20: 300,000 shares sold, $20.1 million profit

Sept. 21: 300,000 shares sold, $20.1 million profit

Sept. 24: 275,400 shares sold, $18.5 million profit

Sept. 25: 324,600 shares sold, $21.8 million profit

Sept. 26: 300,000 shares sold, $20.1 million profit

Sept. 27: 300,000 shares sold, $20.2 million profit

Sept. 28: 300,000 shares sold, $20.2 million profit

Total for just that month? Close to a quarter of a billion dollars. (And that doesn't even count Greenberg's proceeds on his own sales of AIG stock. I'd give you those figures but my calculator overheated.)

October 17, 2007: Starr's profit-taking on AIG shares suddenly stops, according to the Yahoo compilation of SEC figures, only two weeks before AIG is about to reveal its third-quarter financials to the rest of Wall Street.

November 2007: Commentators are already turning really sour on AIG's stock, in part because of AIG's secrecy. At the same time, AIG management insists that things are hunky-dory despite its insuring the companies that are ensnared in the mortgage crisis.

For instance, TV loudmouth Jim Cramer, who often refers to himself in the third person, writes on the afternoon of November 7, 2007, a Wednesday:

Don't buy AIG, Jim Cramer said Wednesday on CNBC's Stop Trading! segment. . . .

Cramer said the stock . . . can't be bought ahead of Wednesday evening's earnings report because investors don't know how big the losses are going to be on AIG's portfolios of subprime mortgages and collateralized debt obligations and the like. What's worse, Cramer added, is that there's no reason to believe investors will have any more clarity after tonight's report.

And what is AIG's report that night? The AP's Madlen Read tells us the next day, on November 8, 2007:

The world's largest insurer may not have invested as much in mortgage-backed assets as the world's biggest banks, but American International Group Inc.'s exposure to the rocky credit and housing markets was enough to dampen its third-quarter profit.

Losses in AIG's investment portfolio, credit-swap portfolio and mortgage-insurance business added up to about $1.4 billion, and caused net income to fall by 27 percent compared with last year's third quarter.

Back in August, AIG called exposure to subprime debt "minimal." On Wednesday, it maintained that despite some losses due to mortgage-backed bonds, its exposure to the debt remains "high quality," with "substantial protection." . . .

Shares fell $1.70, or 2.9 percent, to $56.20 in after-hours trading when the report was released. They had plunged almost 7 percent to close at $57.90 in regular trading Wednesday.

December 13, 2007: Jim Cramer isn't buying AIG's line — or its stock. He writes:

AIG . . . has been adamant that it hasn't been affected by the recent slew of bad loans, but to say it is not enough. [T]he company needs to show it by disclosing its information.

December 20, 2007: Hank Greenberg himself exercises his options to acquire 3.7 million shares of AIG. The same day, his Starr International entity disposes of 4.8 million shares of AIG in a non-open-market transaction.

September 16, 2008: Wall Street finally has enough information on AIG. The government panics and bails out the company, saying it has to do it to prevent a global financial collapse.

If you own shares of AIG that you bought at $70 per and are now worth $2 per and want to sell them, you might try calling Hank Greenberg. He may still have enough cash to bail you out.