AIG Woes Could Spell Trouble for CEO

AIG's performance stands out, however, because the company assured investors in December that it had "little to no exposure" to asset-backed commercial paper, structured investment vehicles or collateralized debt obligations tied to residential mortgage-backed securities. It later disclosed in a regulatory filing that its auditor, PricewaterhouseCoopers, concluded it had "a material weakness in its internal control" related to its accounting for derivative securities.

In mid-February, AIG reported a fourth-quarter loss of $5.3 billion, thanks in part to a pretax charge of $11.12 billion on its super senior secured credit default swap portfolio. Despite early warnings, the charge surprised Wall Street and sent shares of AIG tumbling while Sullivan declared that the company was in "uncharted waters." Joe Cassano, the head of AIG Financial Products, announced he would retire at the end of March.

In yet another sign of how AIG's risk management team was blindsided by its mortgage-related losses, the company announced in March 2007 that it would take on more leverage to ramp up its share repurchases. From then until mid-February of this year, AIG bought back about $6 billion worth of its shares, and now it is raising all that and far more in new equity offerings.

On Thursday, Sullivan conceded in a statement that the company misjudged market conditions.

"The severity of the unrealized valuation losses and decline in value of our investments were beyond our expectations," he wrote, adding that the first-quarter results "do not reflect the underlying strengths and potential of AIG."