How Do You Spell 'Stupid?' A-I-G
Never in the field of corporate folly has a single company been worthy of so much ridicule and at the expense of so many. For all the asinine things AIG has done for us, we elevate it into the highest circle of idiots.
To commemorate this special occasion, and with the hope that AIG's pratfalls provide us with column fodder for years to come, we offer you AIG's dumbest highlights that have recently come to light.
AIG, which was saved from bankruptcy by $170 billion in federal bailout funds, revealed that it paid $220 million in "retention" awards to its financial products employees, the very same unit responsible for selling the risky credit default swaps that drove the company to the brink of bankruptcy.
Edward Liddy, the CEO of AIG, justified the hefty bonuses in a letter to Treasury Secretary Timothy Geithner dated Saturday saying that AIG needs them to "attract and retain the best and brightest talent."
If that weren't galling enough, AIG granted bonuses of $1 million or more to each of 73 employees, including 11 who no longer work for the company, according to New York Attorney General Andrew Cuomo.
Dumbness, in its severe forms, is contagious, and AIG is the equivalent of the plague. Hence, more fodder for the company's entrance into the Hall of Fame. Get this: In a letter to House Speaker Nancy Pelosi, Geithner defended his inability to prevent the bonus payments from AIG, now 80% owned by the U.S. government, saying the Treasury's "lawyers agreed, in consultation with outside counsel, that it would be legally difficult to prevent these contractually-mandated payments."
And still more are now infected: On Monday, Goldman Sachs (GS) (Stock Quote: GS), which had last autumn denied having any "material" exposure to AIG, was revealed to be the biggest beneficiary from the bailout of AIG, receiving $12.9 billion of recently received government money to settle credit default swap (CDS) trades between the two firms. The bailout's chief architect, of course, was former Goldman CEO and later Treasury Secretary Hank Paulson, and Liddy himself was a Goldman board member until he stepped down to take the top job at AIG.
And, unfortunately, no one is apparently immune. President Barack Obama told reporters Wednesday that his administration was not responsible for a lack of federal oversight that preceded AIG's demise. But Obama added, "The buck stops with me."
(GS) We did like one piece of advice that came out of Washington this week. In a radio interview Tuesday, Sen. Charles Grassley (R., Iowa) said AIG's executives should "follow the Japanese example and come before the American people and take that deep bow and say, I'm sorry, and then either do one of two things: resign or go commit suicide."
Yo, Chuck. We like your attitude. Only one problem: Unless these AIG execs have life insurance policies with the U.S. Treasury as beneficiary, that option -- while pleasant to ponder -- won't work.
(GS) But give us a call. We can put the Hall of Fame, and the newly enshrined AIG brass, most any place in the world. What's your thoughts on Leavenworth or Sing Sing?
Dumb-o-meter score: 100 -- Take a bow, AIG. You earned that perfect score.
IBM's Sun Stroke
Merger talks are already under way between IBM (Stock Quote: IBM) and Sun Microsystems (Stock Quote: JAVA), according to a report in Wednesday's Wall Street Journal, which says that IBM could pay up to $6.5 billion for the troubled tech firm. Sun's stock soared more than 79% on the news, finishing the day at $8.89, as investors warmed to the idea of an IBM acquisition.
Set against this backdrop, the company's shares have plunged in the last 12 months and were trading well below their 52-week high of $16.72 prior to Wednesday's spike. Sun traded to a reverse-split-adjusted high of $250 in April 2000, the height of the Internet bubble.
Not Big Blue it seems. IBM is willing to pay twice Sun's market value, despite the company's not-so-sunny track record. If the deal goes through, Sun's losses will dilute IBM's earnings by about 5 cents a share, according to one buy-side analyst. This leads us to the conclusion that IBM is doing the deal more out of desperation, and an inability to grow its business organically, than valuation.
It looks like the future is now for Sun. And they better take advantage of it before IBM realizes it had a total eclipse of the brain and drops the offer.
Dumb-o-meter score: 80 -- IBM needs to wake up and smell the JAVA.
Leaving Las Vegas Sands
The struggling casino company (Stock Quote: LVS) said board member James Purcell resigned last Friday due to a disagreement over the ouster of William Weidner, Sands former president and chief operating officer. Weidner, a nearly 14-year veteran of the company, resigned the previous Sunday after the board informed him his employment would be terminated.
"No business enterprise should undertake the significant actions that have been and are proposed to be taken today without a full meeting of its board," said Purcell.
What a joke. In a town where the house always wins, these guys sure are acting like a bunch of craps shooters. And all this imbecilic, C-level sniping could not come at a worse time. Sands is struggling to avoid a default on its $10.47 billion outstanding debt in the face of vanishing gamblers and untimely expansions into Singapore and Bethlehem, Pa. Sands stock now trades just at a lowly $2, down 97% over the past year.
Although it's not like Adelson was ever going to lose a boardroom battle anyway. When he was asked last week if Weidner's termination would lead to other managers departing, the imperial Adelson replied that "nobody's indispensable."
Dumb-o-meter score: 95 -- The Sands of time are running out for Sheldon Adelson's casino empire.
Ackman Misses Target
Ackman, the founder and chief executive of Pershing Square Capital Management, continued his obsession with the struggling discount retailer Tuesday, offering five nominees for board seats that will come up for election at Target's annual shareholder meeting in May.
Target shares traded this week around $30 a share, down 50% from the level where Pershing Square began building its stake two years ago. One of Ackman's funds, Pershing Square IV, a leveraged investment devoted entirely to Target, lost 90% last year. Ackman called the fund's performance "one of the greatest disappointments of my career to date."
"We believe that our nominees will bring insight, accountability and fresh and relevant perspectives to the Target board," Ackman said in a statement.
Judging from your slate, your proxy battle is just another one of your vain attempts to put Target's store leases into a real estate management trust -- something that current management is dead set against, despite your unceasing -- and wildly unproven -- claims that it will unlock shareholder value.
All your wild schemes are doing is turning you into a target for ridicule by people like us. And more often than not, our aim is true.
Dumb-o-meter score: 85 -- We wonder if Bill ever heard of a little store called Wal-Mart (WMT) . ... Nah.
Chinese Flatten Coke
The Chinese government rejected Coca-Cola Co.'s $2.5 billion bid to buy a major Chinese fruit juice maker Wednesday, raising charges of nationalism and protectionism. Coca-Cola's purchase of Huiyuan Juice Group Ltd., which would have been the largest acquisition of a Chinese company in history, was blocked by the Chinese Commerce Ministry on anti-monopoly grounds.
Chinese nationalists and rival domestic juice makers began protesting last September when the deal was announced, claiming it would give Coke an unfair advantage in China's beverage market. Earlier this month, Coca-Cola tried to curry favor with Chinese regulators by saying it would invest $2 billion in China over the next three years.
And while the Chinese may be voracious fruit juice drinkers, we hardly think their national security depends on the stuff as much as America's depends on the free flow of oil.
Dumb-o-meter score: 80 -- Trade war over Coke? That's "The Real Thing."