NEW YORK ( TheStreet) -- When American International Group (AIG - Get Report) got into trouble more than two years ago, it turned to Blackstone (BX - Get Report) as one of the few Wall Street players it trusted to help steer it onto more solid ground.
Now that relationship is in tatters -- the result of a sharp shift in management approach when current CEO Robert Benmosche seized the reins from the wilting management team of predecessor Ed Liddy.
In November, AIG began selling off its long-term investment in Stephen Schwarzman's storied firm. The move came in tandem with an agreement to end the business relationship with Blackstone after months of often acrimonious negotiations that forced the insurance giant back into the arms of Goldman Sachs (GS - Get Report), TheStreet has learned.
But even as Blackstone became shut out of its role as a lead adviser for AIG's restructuring process, it continued racking up fees because of a contract inked under a previous AIG management team. In the end, AIG paid four firms last year -- Blackstone, Goldman, Rothschild and Citigroup (C - Get Report) -- to do the work that Blackstone alone had been contracted to perform, starting in late-2008."They hadn't been doing anything, even though they had been billing us monthly," says a high-level source intimately involved in AIG's negotiations who wasn't authorized to speak on the record. "We just wanted to get them out of our offices; we wanted to get them out of here; we just couldn't stand them being here anymore. But they were still charging us." A source siding with Blackstone disputes that characterization, describing the firm's services as "a bargain" and noting that some AIG executives who have "been hurt in the pocketbook" due to the company's stock decline or bonus restrictions have ample reason to gripe about Blackstone's fees. Robert Goldberg, a former investment banker who now teaches finance at Adelphi University, points out that for more than two years, taxpayers have been indirectly footing the bill. "If AIG had gone into bankruptcy, the contracts would have been tossed in with all those other liabilities," says Goldberg. "They avoided that with a government bailout." In any case, the relationship has come to a close -- and Blackstone is only the latest in a string of high-level corporate casualties that AIG has endured since its initial bailout woes. What follows is the story of AIG's forced restructuring, through three different management teams, based on interviews with several parties directly involved in negotiations. Spokespersons for Blackstone and AIG both declined to comment on their business relationship or the stock sale.