|
THE
anxiety of foreign and local businessmen who view with
concern what, to them, may be a potential case of
state-driven cannibalization or takeover of the
country’s largest and most profitable distribution
utility, the Manila Electric Co. (Meralco), may find
echoes in the case of the American Insurance Group (AIG),
which, in 2005, was hounded with Rottweiler-like
ferocity by Eliot Spitzer, its chairman and patriarch
forced to resign just to spare the company from further
pain.
In an
article titled Eliot Spitzer and the decline of AIG in
Wednesday’s The Wall Street Journal, James Freeman used
the recent shareholders’ meeting of the insurance giant
as a peg to retrace and assess what has happened since
Spitzer, New York’s then spunky, voluble
attorney-general, went after AIG. “The sorry tale began
in 2005,” went Freeman’s account, “when then-Attorney
General Spitzer piggy-backed on a federal investigation
into a reinsurance deal between AIG and General Re. Mr.
Spitzer hurled accusations of fraud against Mr.
Greenberg on national television, but he never filed any
criminal charges. Instead, he filed a civil suit against
AIG and Mr. Greenberg.”
The
attorney-general who styled himself as David against
Wall Street’s Goliaths—and drew cheers from many
ordinary folk for it—went a step further: He threatened
the AIG board with criminal cases unless Mr. Greenberg
was let go. On March 14, 2005, he got his wish, and the
man described by Freeman as having “built AIG into a
global powerhouse over 38 years” had to step down. That
wasn’t the end of it, though. Two months later the
company was forced “to restate five years of
financials,” blaming “former senior management” for
accounting failures. In early 2006 the insurance giant
settled the New York state’s civil case with a whopping
$1.6 billion.
Fast-forward two years to late February 2008: Gen Re’s
Ronald Ferguson, along with three other Gen Re
executives and one AIG officer, were found guilty of
fraud in a transaction that was supposedly the basis for
the state’s case: Mr. Greenberg was forced out of AIG
supposedly because he called up Ferguson on October 31,
2000, “to suggest a ‘risk-free’ transaction to
artificially increase AIG’s loss reserves [the money put
aside to pay claims].” According to Freeman’s article in
The Wall Street Journal, the evidence so far presented
in the case against Ferguson, et al., as produced by a
key government witness, didn’t bolster the allegation
that Greenberg had mentioned “zero-risk” or “risk-free”
deal—important points without which the transaction
would have been normal and legal. “Known as a
loss-portfolio transfer, it involves one insurer
purchasing from another a set of liabilities, along with
the premiums collected to pay for them. Depending on how
well the purchaser of the portfolio invests the premiums
and avoids payouts, the deal is more or less
profitable,” the Freeman article explains. “But if there
is a secret agreement that the purchaser cannot lose on
the deal, then it becomes merely a sham to artificially
boost the purchaser’s loss reserves.” This, according to
Freeman, “is what the Gen Re-AIG deal eventually
became,” but—it’s a big BUT—the trial testimony (of
Ferguson, et al.) “suggested that the wrong turn
occurred after Mr. Greenberg’s famous phone call.”
The key
government witness whose notes about the phone call were
used, Gen Re’s Rick Napier, had himself stated that, as
far as he knew, no discussions of “risk” occurred in the
Greenberg-Ferguson October 2000 phone call. The no-risk
transaction was only later suggested by a Gen Re
executive who has since been convicted.
So where
did all this highly publicized, macho posturing against
a Wall Street giant lead to? Well, as far as Mr.
Greenberg is concerned, there’s no heeding a fresh
clamor these days to return to AIG. The man who burned
him is himself out of office, hounded out of his lofty,
self-righteous pulpit by allegations that he had
routinely paid for expensive commercial sex for years.
Mr.
Greenberg, despite his fall from power in what may, on
hindsight, be considered a virtual kangaroo trial, at
least has his millions and precious time to enjoy
retirement. The ones left holding the proverbial empty
bag are AIG shareholders. Freeman eloquently describes
their fate: “Trading above $72 in February 2005 before
it was Spitzer-ized, AIG shares closed Monday at $38.95.
The company’s directors defend themselves by saying Mr.
Spitzer gave them little choice but to dismiss Mr.
Greenberg. Whether that was true at the time, they—and
Mr. Spitzer—owe an apology to AIG shareholders.”
This is
not to pass judgment in any way on the innocence or
guilt of Mr. Greenberg, who, like any capitalist, must
have routinely plotted in his heyday to grab whatever
chunk of any business, within and outside America, that
he could to build up his oversized “baby.” The point is
that, if after three years it becomes clear he has been
arbitrarily judged by an overzealous accuser whose feet
of clay melted much faster than butter, then attacks
against “titans” of his stature—read: “oligarchs like
the Lopezes” in the Philippine setting—can only be
masked as de facto public trials at the risk of hurting
the very entities supposed to embody public interest; in
this case, the Meralco that is owned substantially by
millions of state employees and pensioners under the
Government Service Insurance System (GSIS).
We are
tempted to make the parallel because nearly two weeks
since GSIS chief Winston Garcia came out with guns
blazing to accuse the Lopez bloc of corporate evil, the
President convened in Bohol a “study group,” led by the
National Economic and Development Authority board, to
look at all the data and allegations of all parties
involved in the blame game titled, “Who inflated my
electric bill?” Meaning, the study group still has to
make an assessment and recommend options, because the
claims of everyone cannot be taken at face value. Well,
guess what: From the time the accusations were made, and
by the time the instant experts are done, the shares of
Meralco would continue to shrink, as well. Several days
into the saga, an exclusive story in the BusinessMirror
by Emeterio Sd. Perez had already totted the paper
losses of shareholders at P4 billion, and still
counting. Sure, Mr. Garcia may be an investing genius
who got a good price for GSIS in the Equitable-BDO
buyout, and President Arroyo may sincerely want to bring
down the ordinary folks’ electric bills; yet, this
“crusade” cannot continue to be waged in the manner of
the past two weeks. More light, less heat, is needed.
Some comfort may be found, it’s true, in the thought
that the debates opened up to the public the
labyrinthine world of power and electricity accounting,
because the blame game forced some truths out. Still,
prudence is a must because, as the AIG-Greenberg debacle
has proven, some losses, like a consummated death
sentence, are irreversible. |
