AIG Woes Could Spell Trouble for CEO

For Marty Sullivan, CEO of American International Group (AIG Quote), the honeymoon ended in February.

Now, a divorce could be in the offing.

Sullivan got a break from AIG shareholders after he replaced the legendary Maurice "Hank" Greenberg at the helm of the global financial giant amid scandal in 2005. But the magnitude of the company's losses and the clear missteps it made last year put Sullivan's future at AIG in doubt.

In the latest move that is befuddling shareholders, AIG announced it will raise $12.5 billion in fresh capital to shore up its balance sheet amid massive writedowns on its investment portfolio, diluting its existing shares with new equity offerings. At the same time, the company is raising its dividend by 10% to 22 cents a share -- half its planned amount -- in a move that will cost an additional $202 million on an annualized basis.

The dividend increase amounts to small change for shareholders, but many investors were questioning why the company would pay a dividend at all at a time when its raising capital to the tune of 10% of its market cap.

"This is totally irrational from an investor's standpoint, but for Sullivan, it seems to make sense because he's trying to mollify some very irritated shareholders, many of whom have held the stock for a very long time," says Sean Egan, president of Egan-Jones Ratings, an independent ratings agency. "If Sullivan were coming from a position of strength, he would be able to level more with shareholders about the company's situation, but he's still trying prove himself."