AIG's Benmosche Runs Out of Ammunition

(Updated with Frenkel retirement news.)

NEW YORK (TheStreet) -- Just when you thought the AIG farce couldn't get any better (or worse), the hapless insurer surprises us again.

Not only is AIG's stock dangerously overpriced, but ratings company Moody's thinks the insurer may potentially repay a substantial part of its bailout, which stands at more than $100 billion. And today, the Wall Street Journal reports that Chief Executive Officer Robert Benmosche told the board he's considering resigning. On the heels of that report, AIG said Jacob Frenkel, vice chairman of global economic strategies, will retire after five years with the company.

If Benmosche thought such a threat would gain him support, he may have misjudged the nation's mood, if not the board's. Most Americans would say "don't let the door hit you on the way out" after saving massively profitable institutions from self-destruction while at the same time watching their own net worth plummet.

Benmosche would be advised to recall the fable of the boy who cried wolf. He previously threatened to quit in August, even before his outsized pay deal was agreed upon. Now, apparently citing government interference with the compensation plans of AIG senior executives, he told the board he was prepared to quit. He didn't go, though, having agreed to reconsider his decision.

The former MetLife CEO hasn't received much sympathy at AIG. He's being paid $10 million a year for his leadership of a failed company and perhaps he should just go, readers have said. Others mentioned that he would receive his full annual compensation even if he did leave. So he won't lose much.

Benmosche is a veteran and serial agitator, well-known for his bluntness. The board knew what they were getting when they appointed him as CEO in July. It was clear that he's extremely irritated about the restrictions on the salaries of AIG executives, claiming he would lose key employees. However, there must be many capable replacements available in this financial crisis, some who would willingly accept a salary restriction with a big upside for success.

AIG received its original bailout on the understanding that it was being provided to buy time for the group, to survive the immediate cash crisis that it had brought on itself. The requirement of the bailout funding was that there would be an immediate liquidation of assets to repay the borrowing.

The debt to the American people got bigger and bigger as the depth of the inadequacies of AIG's risk controls became clear. When Benmosche took over as CEO, he rapidly changed the sense of urgency to dispose of assets. He decided he would take a slower approach, even delaying or withdrawing assets on the table as it became obvious that AIG would be unable to repay the government completely. The CEO appeared to want to delay any sales until AIG was able to realize a better price. The government accepted, or at least tolerated, that change in strategy.

If Benmosche gained the government's tacit acceptance that AIG could dispose of assets over an extended period, that would be a significant victory for him. It also suggests the government isn't as intransigent as it's being portrayed, being willing to work with AIG to try to get as much back from the bailout as possible. Moody's even reported that this strategy of delayed sales was a significant step.

Benmosche may have to put up or shut up because, next time, if there is a next time, he might just receive a shrug of the shoulders and a polite "goodbye" from the board.

-- Reported by Gavin Magor in Jupiter, Fla.