Quite a set

At a reception shortly after he became chief executive officer of American International Group Inc., Robert Benmosche told a group of AIG executives that a part of his anatomy was bigger than the government's. His five-month tenure at the insurer is putting his swagger to the test.

That's the Benmosche I remember meeting at Metlife when he first joined: arrogant, as in having or showing feelings of unwarranted importance out of overbearing pride.

Overbearing fits, too.

Mr. Benmosche, more than any other leader of a bailed-out American company, has styled himself as a bulwark against government intrusion into the corner office. Although he sees his main mission as repaying roughly $87 billion in taxpayer money pumped into AIG, he doesn't want the government to tell him how to do his job.

He didn't want anyone telling him anything.

"Look, if you want me to come in here and just blow up the company, which is what you're doing, I'm not taking the job," Mr. Benmosche recalls telling government officials in New York and Washington when he was being screened.

Mr. Benmosche told government officials that he thought plans to quickly sell off assets to repay U.S. money were misguided. If you sell from weakness, you won't get good prices, he told them.

Good point. Selling from weakness is not good.

On his first day on the job, Mr. Benmosche met with senior managers at AIG's lower Manhattan headquarters. He exhorted them to come together to solve the company's problems, and said he didn't want to hear "whining and a lot of crying" about AIG's woes.

Also a good point.

He used the F-word liberally, prompting some executives to quietly tally up the number of times he used it, according to a person familiar with the situation. "I was aggressive in my language, but I was trying to set a tone that life will be different and some things are not negotiable," Mr. Benmosche says.

Who is this person who is always familiar with the situation? At any rate, he obviously used it for effect. And it isn't as if the executives had not heard, or used, it before.

In the ensuing weeks, Mr. Benmosche traveled around the nation meeting hundreds of AIG employees. In August, at a reception prior to a dinner with 20 or so executives at an AIG life-insurance unit in Houston, Mr. Benmosche said "my b -- are bigger than the government's," apparently to make the point that he wasn't easily intimidated, say two people familiar with the matter.

Sounds like him.

Mr. Benmosche says he doesn't recall saying such a thing. "If I said it, I would apologize, as it was not appropriate," he says, adding that sometimes "you have to be a little bit provocative if you're going to get people to believe in you and know you're not afraid."

There are different ways to express resolve and be provocative, and not all involve comparing the size of one's balls to the government's, or anyone else's. That sort of crude measure is a macho gesture that says more than the measurer realizes.

No one who is around Benmosche for a short while would presume him to be afraid of much anything, without his genitals being served up for assessment.

In late August, Mr. Benmosche made a previously scheduled trip to his vacation home and vineyard in Croatia. He showed off the sprawling property to several journalists, complaining at the same time about the demonization of AIG employees on Capitol Hill.

Around that time the name of AIG kept popping up as the financial crisis threatened to spiral out of control.

Around that time, some of the comments he made at employee meetings trickled out. Bloomberg News reported that he had said regulators were to blame for AIG's problems and that New York Attorney General Andrew Cuomo, who had demanded the names of AIG employees who received retention bonuses, should not be in office.

Blame the regulators; an old shill game. But Benmosche's political analysis was a brand new one.

James Millstein, the Treasury's point person on the AIG bailout, worried that the comments would undermine the company by reigniting populist anger. He called Mr. Benmosche in Croatia. "Bob, what are you doing?" Mr. Millstein asked.

"I got a bit into it and said a bunch of stupid things," Mr. Benmosche replied, saying he didn't realize the comments would become public. AIG issued a statement saying Mr. Benmosche regretted his remarks about Mr. Cuomo, who didn't end up releasing the names.

Ah, yes, the old Washington excuse, which Alex Rodriguez used so effectively: I was young, I was stupid, and I apologize. C'mon. An executive who got to Benmosche levels is not naive enough to believe pointed comments of one kind or another would not be leaked.

Dana Milbank wrote a book about the proliferation of apologies, Homo Politicus: the strange and barbaric tribes of the Beltway that simply fits perfectly. I took note of reading it, and of how it fit, beginning i March of 2008, and then through the political campaign.

Politicians Butt In

Montana Rep. Denny Rehberg was no fan of the $58 billion federal rescue of General Motors Co., saying he worried taxpayer money would be wasted and the restructuring process would be vulnerable to "political pressure." Now the lawmaker says it's his "patriotic duty" to wade into GM's affairs.

His logic is curious: he opposed the bailout because of possible political pressure, and now he exercises political pressure -- for patriotic reasons, of course.

Along with Montana's two Democratic senators, the Republican congressman is battling to get GM to reinstate a contract with a Montana palladium mine nullified in bankruptcy court. "The simple fact is, when GM took federal dollars, they lost some of their autonomy," Mr. Rehberg says.

'xactly. Not that his are the only hands in where they should not be.

US $ help private firm buy Delphi

* JUNE 5, 2009

Investor Firm to Tap GM's Fresh Billions to Buy Delphi

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By PETER LATTMAN

Flush with $30 billion in new capital from the U.S. government, General Motors Corp. has agreed to finance a private-equity firm's buyout of bankrupt auto-parts company Delphi Corp.
More

* GM to Sell Saturn to Penske
* GM to Revamp Top Ranks
* Small Parts Suppliers Fight to Survive
* China May Stall Bid for Hummer
* Opinion: Barney Frank, Car Czar

GM will provide more than $2.5 billion of the $3.6 billion necessary for Beverly Hills-based buyout firm Platinum Equity to gain control of Delphi, according to a person familiar with the matter.

Since Monday, GM and the government have been mum about who would provide the money to help Delphi emerge from bankruptcy. A GM spokeswoman wouldn't comment on specific figures but noted in a statement that funding for the Delphi buyout was "incorporated into GM's revised viability plan."

GM's involvement represents new ground in its use of government support. The Obama administration has begun to use private-equity firms to take over failed banks but has yet to use them in the auto industry.

Such transactions can prove hugely profitable for a buyer, depending largely on financing costs and the buyer's ability to turn around the business.

Under the terms of the transaction, Platinum is expected to invest no more than $750 million, according to the person familiar with the deal. GM would provide the balance in financing.

Those financing commitments may or may not be drawn upon in the future, depending on how Delphi performs. The terms of the GM loans couldn't be learned.

As part of the deal, GM is buying back four Delphi plants and Delphi's Saginaw, Mich., global steering division. In addition, it's providing a $250 million loan to fund Delphi's operations while it remains in Chapter 11.

The Delphi rescue is a turnabout for GM. Delphi has languished in bankruptcy court for nearly four years, and it has been an enormous cash drain on GM. Earlier this year, GM said it wasn't interested in propping up the auto-parts maker any further.

Platinum is controlled by Tom Gores, a Michigan native who has recently made several acquisitions in the auto sector. Earlier this month his firm announced a deal to acquire Alcoa Inc.'s wire-harness and electrical-distribution business, based in Farmington Hills, Mich. Platinum also owns Acument Global Technologies, a fastening manufacturer in Troy, Mich.

The Platinum deal must still be approved by the bankruptcy court. GM has said that if the company doesn't get that support, it will try to complete the transaction through a sales process under the U.S. Bankruptcy Code.

Stress test stress

Not looking too good for a couple chief execs ...

Days could be numbered for BofA and Citi CEOs

Reuters - ‎38 minutes ago‎

By Jonathan Stempel - Analysis NEW YORK (Reuters) - The chief executives of Bank of America Corp and Citigroup Inc may be shown the door if the US government decides the $90 billion of capital it has already injected isn't enough to restore the banks' ...

US Stocks Rise as Consumer Confidence Offsets Swine Flu Bloomberg

BofA, Citi Fall On Report They May Need To Raise More Capital Wall Street Journal

and

BofA Needs a New Chief

Wall Street Journal - ‎23 minutes ago‎

By PETER EAVIS A group of dissident shareholders wants to oust Ken Lewis as chairman of Bank of America at Wednesday's annual meeting.

Bank of America Chief Lewis Loses Support of Calpers Bloomberg

Calpers Is Voting Against Lewis and BofA Board New York Times

Cerberus Tries to Get Chrysler Out of a Ditch

A giant stumbles, loses money, and gets a financial bloody nose.

For Stephen A. Feinberg, the long road back from the most disastrous investment of his career — Chrysler L.L.C. — began last week around a polished wood table inside the Treasury Department. It was not the road he had envisioned when his private investment firm, Cerberus Capital Management, bought Chrysler in the summer of 2007.

O, yes, in 2007 things looked good. Really good. As it turns out, that was the very top of the stock market's ride.

Back then, Mr. Feinberg was hailed as a hero — the Wall Street financier who just might save the American car industry. Instead, he lost billions for his investors and co-investors. And last week it became clear that he would lose Chrysler’s auto operations, as well.

Cerberus is one of the big financial players.

So as the Obama administration prepared to assert control over Chrysler and General Motors, Mr. Feinberg flew to Washington to try to salvage what he could. In a midweek meeting with Treasury officials, Mr. Feinberg agreed to give up the 80.1 percent stake in Chrysler held by Cerberus and its co-investors, according to a person briefed on the negotiations. He first offered to do this last year.

Billions of investment dollars gone poof!

But Mr. Feinberg did not go quietly. He also discussed additional federal money to help his other wayward investments in Detroit: GMAC and Chrysler Financial. Cerberus is now pushing the government to help orchestrate a merger of the two auto financing companies — a move that might eventually yield a profit for Cerberus.

GMAC is now a bank. Imagine that: Chrysler Bank.

Whether the Obama administration will oblige is unclear. But this much is certain: Cerberus, long considered one of the most formidable investment firms on Wall Street and in Washington, stumbled badly in Detroit. It is now struggling to rescue not only what it can of its investments — about $3 billion in Chrysler and the two finance companies — but also its reputation. Cerberus persuaded others on Wall Street to invest billions more.

But the loss is bigger, wider than that.

Cerberus, many agree, was like so many private equity firms that overreached during the late boom in corporate buyouts. But the firm also seems to have miscalculated in Washington. Mr. Feinberg employs a Who’s Who of Washington insiders, among them John W. Snow, the former Treasury secretary, and Dan Quayle, a former vice president. Cerberus has lobbied aggressively in recent months to shape the government’s rescue of the auto industry, to little avail.

I wonder how many people Dan Quayle (or is that Quayl? — get it?) lobbies, and how many don't laugh.

But Cerberus, like many private equity firms, loaded its new ward with what turned out to be crippling amounts of debt. Cerberus piled about $20 billion of debt onto Chrysler, Mr. Gabbert said. As car sales plunged across the industry — and, in particular, at Chrysler — the carmaker began to buckle under its load.

That is a huge debt load.

Cerberus began losing its control over its Detroit investments when the government stepped in to rescue the automakers last year. In the case of GMAC, the government invested money in December and required that most of Cerberus’s operations team be removed. But some co-investors said that made sense because at that time, the government became the majority owner of GMAC.

Cerberus’s investors in the Chrysler deal include pension funds for public employees in Indiana and for public school employees in Pennsylvania, according to PitchBook.

U.S. Hopes to Ease G.M. to Bankruptcy

Look at the post on Cerberus above.

The government may seek to ease General Motors into what it calls a “controlled” bankruptcy, somewhere between a prepackaged bankruptcy and court chaos, by persuading at least some creditors to agree to a plan that would cleave the company into two pieces, according to people briefed on the matter.

Instead of signing on every creditor as is typically required in prepackaged deals, administration officials are using as leverage the promise of taxpayer financing. Many regard the government as the only lender willing to step up with money — in bankruptcy or out.

Obviously the government is the only lender left.

“They’re going to have tremendous power,” said Lynn M. LoPucki, a law professor at the University of California, Los Angeles. “They can call off the money and the whole thing fails.”

It no longer seems ridiculous or reckless to consider bankruptcy.

G.M.’s new chief, Fritz Henderson, also said that the pressure from the government pushed the automaker closer to bankruptcy. “By no later than June 1, if we’re not able to accomplish this outside bankruptcy, we’ll be in bankruptcy,” he said at a news conference in Detroit on Tuesday. “It’s pretty clear. The government was unequivocal.”

Under a plan being worked out by the administration, G.M. would file for prearranged bankruptcy, according to these people. It would then use a sale authorized under Section 363 of the bankruptcy code to quickly sell off the desirable assets to a new company financed by the government. These good pieces might include Cadillac and Chevrolet, as well as assets the company needs to run the business.

Less desirable assets, brands like Hummer and underperforming factories, would be left in the old company. Proceeds from the sales, including stock in the new company, would be given to the old G.M., helping to settle claims.

Elements of the government’s plans for G.M. are in some ways similar to the demise of Lehman Brothers last fall. A day after filing for Chapter 11 protection, the securities firm agreed to sell the bulk of its North American business to Barclays Capital, the British bank. The sale was completed in a little more than three days.

The administration hopes to win support from some of G.M.’s creditors, notably the United Automobile Workers, which would be forced to pare its health care benefits and whose pension obligations would probably remain in the old company. But the bankruptcy code allows a judge to approve a sale even over creditor objections in an emergency under Section 363, legal experts say. Such was the case with the Lehman sale.

History offers almost no precedent for a G.M. bankruptcy filing. Companies like Continental Airlines and the Delphi Corporation, the auto parts maker, have used the courts to transform their businesses and reduce their costs. But none matched the size and interconnectedness of G.M.

Delphi used a bankruptcy judge’s threat to void union contracts to wring concessions out of its workers, said Gary N. Chaison, a professor of industrial relations at Clark University in Worcester, Mass. “That’s a very potent threat, to withdraw from the collective agreement in bankruptcy,” Mr. Chaison said.

“The hope is that if we call it a controlled bankruptcy, that’s what it will be,” he said.

Speaking English?

Two items on the front page of today's Wall Street Journal caught my eye:

In the What's News column Business & Finance, this nugget: "PNC Financial cut its dividend 85% as the Pittsburgh bank vaguely pointed to shifting regulatory demands." Huh? Vaguely?

And in a story headlined Justice says CIA destroyed 92 tapes, the word memorandums is used. Well, it might be acceptable, but I'd say memoranda is better.

PNC Financial Services Group Inc. said Monday that shifting demands from the bank's government regulators, combined with withering economic conditions, had driven the Pittsburgh-based regional bank company to slash its quarterly dividend 85% to a dime.

During the conference call Monday, a couple analysts tried to ply more information from Rohr about how bank regulators are judging firms' financial health under the light of an almost unprecedented financial and economic conditions. But Rohr toed a careful line, and declined to say anything more than suggesting that oversight is growing more stringent.

Again, the grammar: a couple analysts? Oy vay, spare me.

Help Me! I'll sue you

U.S. Extends AIG Bailout by up to $30 Billion is the headline of the story; the sub-head is: New Terms Give Treasury 77.9% Equity Interest; Insurer Posts $61.66 Billion Loss

On the same page 12 that the story ends in today's ediutions of the Journal, is this nugget.

March 2, 2009, 12:02 a.m. ET

In Twist, AIG Sues Its Benefactor Over Taxes

by Jesse Drucker and Liam Pleven

In the midst of its negotiation with the federal government over revised terms of its bailout, American International Group Inc. sued the U.S. on Friday over a disputed $306 million in taxes, interest and penalties.

The federal government is giving the company over $150 billion to save it, and the company is suing the government. Hello?

The suit steps up a battle with the Internal Revenue Service largely over AIG's use of a controversial type of "tax arbitrage" transaction that authorities are challenging across the world.

With the company essentially suing its owner, the suit highlights the awkwardness of national control of AIG, which the government rescued from potential bankruptcy in September. If through litigation "you're moving money from one pocket to another, why should we be paying lawyers to do that?" says David Weisbach, a tax law professor at the University of Chicago.

Awkwardness of national control? How about awkwardness of corporate types not getting the message: the old days of ciutting corners are done. You messed up, you lost.

"AIG is taking this action to ensure that it is not required to pay more than its fair share of taxes," said a company spokeswoman. An IRS spokesman declined to comment. In its lawsuit, filed in U.S. District Court in Manhattan, AIG for the first time laid out significant details about its role in the so-called "foreign tax generators" in dispute with the IRS. The general nature of the disagreement was previously disclosed in company securities filings and reported by The Wall Street Journal in May.

The foreign tax credit transactions detailed in the lawsuit took place in 1997, but AIG said in a securities filing that it also expects the IRS to challenge similar deals from more-recent years. The company paid the amounts in dispute and is now suing for a refund.

In a typical transaction, an AIG subsidiary would borrow money at favorable interest rates from an overseas bank and also earn investment income. It would pay foreign taxes and earn a foreign tax credit in the U.S. for those foreign taxes. Simultaneously, the subsidiary would pay dividends to the foreign bank that lent it the money. The foreign tax laws generally exempted those dividends from taxation to the foreign bank.

Tax authorities are concerned that the arbitrage of the two sets of tax laws allows companies to essentially double-dip, taking two tax benefits in two different countries simultaneously.