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Xcellon Institute_School of Business

Case study analysis of Coping with Financial and Ethical
Risks at American International Group (AIG)

PGP-GBM
(2011-13)

Corporate Governance and Business Ethics

Submitted By:
Manish Kumar Lodha
M00103
1|Page

Submitted To:
Prof. Vivek Raina

Index:_________________________________________________________

Case summary……………………………………………………..

3-4

Question & Answer……………………………………………….. 5-9
Conclusion………………………………………………………

2|Page

10-10

Case Summary
When American International Group (AIG) collapsed in September 2008 and was subsequently
saved by a government bailout, it became one of the most controversial players in the 2008–2009
financial crises. The corporate culture at AIG had been involved in a high-stakes risk-taking
scheme supported by managers and employees that appeared entirely focused on short-term
financial rewards. Out of a firm of 116,000 employees, one unit with around 500 employees,
AIG Financial Products, was chiefly to blame. Current CEO Ed Liddy, who was summoned by
former Treasury Secretary Hank Paulson, estimates that only twenty to thirty people were
directly involved in bringing down the company

The AIG Financial Products unit specialized in derivatives and other complex financial contracts
that were tied to subprime mortgages or commodities. While its dealings were risky, the unit
generated billions of dollars of profits for AIG. Nevertheless, during his long tenure as CEO of
AIG, Maurice “Hank” Greenberg had been open about his suspicions of the AIG Financial
Products unit. However, after Greenberg resigned as chief executive of AIG in 2005, the
Financial Products unit became even more speculative in its activities

Immediately before its collapse, AIG had exposure to $64 billion in potential subprime mortgage
losses. The perfect storm formed with the subprime mortgage crisis and a sudden sharp downturn
in the value of residential real estate in...

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