Three years after Eliot Spitzer decapitated the world’s largest
insurer, his protégé has stepped in to try to save the company from
collapse.
New York’s insurance superintendent, Eric Dinallo, agreed yesterday to extend a
lifeline to American International Group
by easing state regulatory restrictions. It is an odd twist in the
legacy of Mr. Spitzer, who crusaded against the company’s management in
his days as the state’s top prosecutor. Shortly after he was elected
governor, Mr. Spitzer hired Mr. Dinallo, who had served as his
right-hand man in the attorney general’s office.
Under the plan, New York State will essentially allow the
insurance company to borrow $20 billion from itself, hopefully granting
it time to raise some much-needed capital.
Mr. Dinallo spent the weekend hammering out the deal with
executives. In the longer term, he will also work with the Federal
Reserve to negotiate a possible loan for the company, which holds $1
trillion in assets.
“We are working closely with AIG to craft a transaction that will
stabilize an important New York insurance company, while protecting
policyholders,” Mr. Dinallo said in a statement.
Yesterday’s attempted rescue of AIG came as Wall Street reeled from the fall of another
major financial institution, Lehman Brothers Holdings Inc., and the sale
of a third, Merrill Lynch, to Bank of America.
AIG’s relationship with state officials was not as rosy a few
years ago, when Attorney General Spitzer launched an aggressive fraud
investigation against its CEO, Maurice “Hank” Greenberg. Mr. Greenberg
was subsequently forced to step down.
Mr. Dinallo left for private practice in 2003, before Mr. Spitzer
launched his crusade against AIG. Mr. Dinallo had previously served as
the head of the Investment Protection Bureau, which investigated Wall
Street cases for the attorney general’s office. When Mr. Spitzer became
governor in 2007, he tapped Mr. Dinallo to lead the state’s insurance
department.
Mr. Dinallo has since taken bold positions in his dealings with
insurance companies, according to the executive director of the advocacy
organization United Policyholders, Amy Bach.
“He’s not as high-profile or as aggressive as Mr. Spitzer,
certainly, but he’s been upholding Spitzer’s legacy quite well as an
insurance regulator,” Ms. Bach said.
In January, Mr. Dinallo reportedly took a Spitzer-like tone with a
group of top financial executives who had convened to coordinate a
bailout for bond insurers. He blamed them for the mortgage meltdown that
had caused the problem, according to the Wall Street Journal.
“You people created this mess,” he said. “And the headline on this
is going to be: ‘How Wall Street Ate Main Street.'”
While AIG’s leadership arguably never recovered after Mr.
Greenberg’s ouster, its current problems stem from the subprime mortgage
crisis. It had been racing to secure new capital — to the tune of $40
billion — to avoid a credit rating downgrade that could doom the
company.But the downgrades were announced last night despite the state’s
financial plan.
Governor Paterson hailed the state’s financing plan, saying it is
“not a government bailout.”
“Wall Street’s continuing problems should serve as a stark
reminder that this recession is far from over,” he said in a statement.
“On a state level, we were able to reach a market-based solution that
will stabilize AIG at no cost to New York taxpayers.”
AIG did not return calls for comment. A spokesman for Mr.
Greenberg, Ken Frydman, declined to comment.