NEWSMAKER-Lonely moments for U.S. Treasury’s AIG fix-it man

(For a special report on AIG, click here [ID:nN20110203])

* Treasury’s Millstein considering next move after AIG

* Lured from Lazard, Millstein found AIG “shell-shocked”

By David Lawder and Paritosh Bansal

WASHINGTON/NEW YORK, Dec 21 (BestGrowthStock) – Jim Millstein is no
stranger to troubled companies. With a long career as a
bankruptcy lawyer and former head of Lazard Ltd’s restructuring
practice, he’s done his share of turnarounds.

But nothing prepared him for the firestorm that was
American International Group (AIG.N: ) when he arrived at the
Treasury Department in the spring of 2009.

Controversy over $165 million in retention bonuses paid to
employees of AIG Financial Products — the unit that brought
down the company — was raging. Edward Liddy, then AIG chief
executive, had just been excoriated in a House of
Representatives hearing and public sentiment was rapidly
turning against bailouts.

“Suffice it to say, when I got to the building, everyone
was shell-shocked,” Millstein said of the Treasury. “And the
company was completely shell-shocked.”

The son of famous New York corporate governance lawyer Ira
Millstein, he had been enticed to come to Treasury as chief
restructuring officer to manage a wide range of bailout
investments. But he quickly learned his sole focus would be AIG
— much to the relief of others working on the politically
toxic project.

“It was like, ‘Thanks for coming. It’s your problem,'” he

A year and a half later, with the Treasury about to execute
a complex stock conversion deal that will pave the way for an
eventual exit of AIG — potentially at a massive profit —
Millstein, 55, is ready to consider a new assignment in
Washington. He wants to see the transaction completed first.

“I am still looking around. There are still some problems
around town that need fixing,” he said. While he would not be
specific, he noted that among the problems “sitting there” were
mortgage finance giants Fannie Mae (FNMA.OB: ) and Freddie Mac
(FMCC.OB: ).

Starting in the new year, the Treasury will embark on a
massive effort to restructure Fannie and Freddie, which were
seized by the government just two months before the AIG bailout
in July 2008. They dominate the U.S. mortgage market with their
guarantees, so any overhaul would entail finding a new business
model for securitizing mortgages and providing affordable loans
to the housing market.


Millstein said the early days of the AIG workout had some
“lonely moments” for him and his deputy, Thomas Casarella, with
whom he had worked at Lazard. Unlike the bailout of General
Motors Co (GM.N: ), which had political support from the White
House and throughout Congress, AIG was a pariah that seemed to
bring negative headlines to the Obama administration at every

The two worked largely on their own at the Treasury, in
close contact with AIG management and the team at the Federal
Reserve Bank of New York.

The first task was to survey the wreckage, sifting through
the opaque web of intra-company guarantees that contributed to
the insurer’s collapse.

This was a “series of onion layers,” each one revealing
more disturbing and confusing information, said Casarella, 32.
“It wasn’t just figuring out what one thing was. It was
figuring out what all of these things were.”

Worse, no one knew where the bottom was. AIG was still
burning through cash at an alarming rate and it was not clear
whether the $182.3 billion bailout would be enough to save it.

They began contemplating how they could break it up and
sell it off in bankruptcy court.

Fortunately, the stock market rallied in the summer of 2009
after bank stress tests opened the door to capital raisings,
providing some breathing room. They began to size up asset
valuations and the core option soon become clear — sell off
the foreign insurance units and other non-core assets to repay
the Fed and retain Chartis and SunAmerica as the core of the

Millstein spoke almost daily with AIG Chief Executive
Robert Benmosche on options to accelerate the repayment to the
Fed and allow the company to regain an investment-grade credit
rating. With 28 years of sparring in and around bankruptcy
proceedings, he found ways to settle disputes between and
within the three major partners — AIG, Fed and Treasury.

“Jim speaks the language, and he doesn’t let anyone get
away with anything. He often mediated between folks,” said
Sarah Dahlgren, who headed the New York Fed’s AIG team.

Another person involved in the turnaround effort said
Millstein was able to “leaven tense moments with a sharp sense
of humor.”

Millstein all the while had to deal with an unprecedented
level of scrutiny from bailout oversight bodies that are still
questioning the handling of the AIG bailout and the wisdom of
payments to counterparty banks.

In May, the Congressional Oversight Panel seemed shocked at
his testimony predicting that U.S. taxpayers could wind up
profiting from AIG. It issued a report just weeks later saying
taxpayers were “at risk for severe losses” on the bailout and
it was unclear whether they would ever be repaid.

Based on the exit plan and a stock price that shows a paper
valuation of some $90 billion for the government stake, that
view is changing.

“The AIG story has improved greatly. Despite earlier
criticisms, Treasury deserves credit,” Congressional Oversight
Panel member Richard Neiman, who is the New York state banking
superintendent, said in a statement. “Jim has brought a strong
set of skills that has well served the taxpayer and public.”
(Reporting by David Lawder in Washington, Paritosh Bansal in
York and Kristina Cooke in New York, writing by David Lawder;
Editing by Claudia Parsons and Jim Impoco)

NEWSMAKER-Lonely moments for U.S. Treasury’s AIG fix-it man