AIG gets new directors at subdued annual meeting

(GOVERNMENT, DIRECTORS, MEETING, BOARD, INVESTORS, LIDDY)

By Lilla Zuill and Paritosh Bansal
NEW YORK (Reuters) - American International Group Inc (AIG.N) got a new slate of government-backed directors at a subdued annual meeting on Tuesday, effectively revamping its board after the insurer`s $180 billion taxpayer bailout.
The meeting attracted far fewer investors than in years past and wrapped up in less than an hour, with the outcome of company proposals all but assured by the fact that trustees appointed to oversee the government`s nearly 80 percent stake in AIG can swing any vote.
Only a handful of investors used the meeting as a forum to air grievances, even though it was the first public opportunity to address AIG management and directors since the company`s implosion last September.
Less than 200 investors attended the meeting, held in AIG`s soon to be sold 72 Wall Street building, which was circled by security personnel. This was in sharp contrast to overflow crowds in years past.
Shareholders have seen the value of their stock all but wiped out. The shares, which traded as high as $100 at the beginning of the decade, have languished below $2 nearly all year. In morning trading they were down 18 cents at $1.15.
"I am sorry for what`s happened to you," Chief Executive Edward Liddy told a shareholder who said she and her husband had bought AIG shares in their retirement plan and had lost a lot of money. "The story that you recount has happened to so many folks," Liddy said.
AIG delayed its annual meeting, usually held in May, to give it more time to shuffle its board, which has been almost entirely reconstituted over the last year.
"They were like rats leaving a sinking ship -- goodbye and good riddance," shareholder Kenneth Steiner of Great Neck, New York, said at the meeting, referring to departed directors.
At least seven of the new directors were recommended by either the U.S. Treasury Department or the trustees overseeing the government`s stake in AIG.
Steiner also took aim at PricewaterhouseCoopers, AIG`s outside auditor. He called PwC "incompetent at best" for not alerting shareholders sooner to a lack of internal controls. AIG disclosed that it paid the accounting firm $131 million in 2008.
Liddy defended PwC, which was reappointed as auditor for the coming year. He said PwC cited AIG for a material weakness in controls in early 2008, effectively forcing AIG to disclose that large losses could be lurking in a derivatives portfolio.
AIG usually hands out thick, glossy, photo-filled annual reports at the meeting, but not this year. Instead, it distributed bare-bones copies of its 10-K filing with the U.S. Securities and Exchange Committee, printed on cheap newsprint. A spokesman cited financial constraints.
NEW LEADERSHIP
Liddy said he was confident the board would soon name a new chairman and CEO. He plans to relinquish his spot on the board once candidates for CEO and chairman are lined up to succeed him.
Liddy, responding to investors who asked if they should hold onto their shares, said he could give no assurance that the government would ever relinquish its stake in the insurer.  Continued...
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Recovery frail but stimulus exit must be timely

(CENTRAL, BIS, BANKS, RECOVERY, ANNUAL, STILL, AFTER)

By Krista Hughes and Natsuko Waki
BASEL, Switzerland (Reuters) - Unprecedented attempts to stimulate economic growth may fail to bring a sustained recovery, yet withdrawing them too late could be even more risky, leading central bankers said on Monday.
Regional currencies would gain in importance, they also said after two days of talks. But the U.S. dollar still had no serious rival in playing a lead role in foreign reserves and trade settlement, according to the monetary policy chiefs from the world`s major industrial and emerging economies.
The Bank for International Settlements warned that although authorities had tried to arrest sharp declines in economic output, it was still an open question whether the stimulus would lead to a sustained recovery.
Still, waiting too long to withdraw support could fuel inflation and create new imbalances, the BIS, which acts as a forum for the world`s central banks, said in its annual report.
"It may be too early to take exit strategies now; we don`t think it`s too early to talk about them," BIS general manager Jaime Caruana told Reuters Television after the bank`s annual meeting.
Although it was risky to wait too long, "experience suggests that the bigger risk is exiting too late and too slowly or, in the case of fiscal policy, not exiting at all," he said after the meeting at the BIS headquarters in the Swiss city of Basel.
As the financial crisis has deepened, central banks around the world have slashed interest rates and poured extra liquidity into markets, some by buying assets directly.
Governments have rushed to help banks and promised extra public spending this year worth about 2 percent of economic output of the Group of 20 nations, according to the International Monetary Fund.
Central bank chiefs attending the meeting, including European Central Bank President Jean-Claude Trichet, U.S. Federal Reserve Chairman Ben Bernanke and Bank of Japan Governor Masaahi Shirakawa, believe that eventually ending the very expansionary policies will be a major challenge.
Mexico`s Guillermo Ortiz told Reuters that it may be premature to detail exit strategies as yet. Amando Tetangco of the Philippines said central banks could refrain from raising interest rates, warning that exit strategies should avoid disorderly adjustment.
ONLY TEMPORARY HELP
The BIS said governments may not have acted quickly enough to remove problem assets from the balance sheets of key banks, instead focusing on guarantees and capital -- also exposing taxpayers to potentially large losses.
Past experience showed that the key to recovery was to force the banking system to take losses, dispose of non-performing assets, eliminate excess capacity and build their capital base.
"These conditions are not being met. A significant risk is therefore that the current stimulus will lead only to a temporary pickup in growth, followed by protracted stagnation," the BIS said in the annual report.
"The lack of progress threatens to prolong the crisis and delay the recovery because a dysfunctional financial system reduces the ability of monetary and fiscal actions to stimulate the economy."  Continued...
Original article

Central banks seek rankings for financial products

(OF, BIS, FINANCIAL, THEIR, BANKS, GOVERNMENT, PRODUCTS)

By Huw Jones and Krista Hughes
BASEL (Reuters) - Financial products should be treated like medicines and sold to consumers only when they are certified safe to prevent a repeat of last year`s financial meltdown, the world`s central bankers said on Monday.
The Bank for International Settlements (BIS), which acts as a forum for central banks, said government efforts to revive the global economy might have only a temporary impact because banks are not being pushed hard enough to fix their underlying problems.
Banks` lending and other practices, including the approval of risky mortgages in the United States, led the global economy into the worst recession in decades. Governments have poured trillions of dollars into rescuing the financial system and easing a recession that has cut through company workforces.
A rise in Japanese industrial output and a pick-up in euro zone economic confidence showed the unprecedented government spending is having an effect.
But policymakers said it was too early to conclude a recovery was taking root and officials in the United States, Europe and China said the need for further stimulus measures should not be ruled out.
"I think that we are not out of the woods yet," said Guillermo Ortiz, Mexico`s central bank governor and the BIS board chairman. "One important question is whether these green shoots actually take root.
Global recovery hopes have pushed world stocks more than 20 percent higher in the second quarter. But the rally has stalled recently on worries that markets may have been too aggressive in their bets on the strength and timing of the nascent upturn.
U.S. stocks are expected to open flat to higher following mixed signals from Asia and Europe. Tokyo shares fell 1 percent, but European stocks were up 0.9 percent by 1200 GMT. <MKTS/GLOB>
RISK OF "PROTRACTED STAGNATION"
The BIS was alarmed by how a collapse in the value of opaque and complex securitized products propelled the world`s financial system into crisis. It said in its annual report all financial products should be registered like medicines.
The safest instruments would be available to everyone, a second tier only to people with authorization, like prescription drugs, and a third tier to a limited number of pre-screened individuals and institutions, like experimental drugs are.
A final tier would be securities deemed illegal.
"Such a registration and certification system creates transparency and enhances safety ... This will mean that issuers bear increased responsibility for the risk assessment of their products," the BIS said.
The BIS also said that while governments have moved quickly to support their economies, they have not done enough to remove problem assets from banks` balance sheets.
"A significant risk is therefore that the current stimulus will lead only to a temporary pickup in growth, followed by protracted stagnation," it said.  Continued...
Original article