American International Group (NYSE:AIG) is bringing in a new CEO, and it's not a moment too soon. The insurer's board announced over the weekend that former Citigroup (NYSE:C) executive Robert Willumstad will replace its beleaguered chief executive Martin Sullivan effective immediately. With all the trouble that AIG has seen, and all the puffed up language Sullivan used to describe the insurer's situation, this is clearly good news for the future of the company.

House of Words
Right at the beginning of the current financial crisis, slightly less than one year ago, Sullivan made comments reassuring the market of the insurance company's financial stability. After billions of dollars in losses and a more than 50% drop in the stock, it is clear that Sullivan's claims were grossly inaccurate. I, for one, am personally bothered by Sullivan's words in retrospect. His claims now sound incredibly misleading.

Sullivan joins a long list of CEOs that have been booted due to the credit crisis, including Charles Prince from Citigroup, Stanley O'Neal from Merrill Lynch (NYSE:MER), and Ken Thompson from Wachovia (NYSE:WB). (To learn how to spot a phony, read Get Tough On Management Puff.)

Roll Up Those Sleeves
The move for Willumstad to take over is a positive one for the company, but the new CEO will have his work cut out for him. AIG lost $7.8 billion in the first quarter of 2008, and lost more than $5 billion in the fourth quarter of 2007 after Sullivan's repeated claims that its portfolio was in fine shape. Sullivan told investors that the company was fine to face the current crisis a year ago, but only in May admitted that the losses were bigger than expected.

AIG is also facing a regulatory probe to examine whether the company was overstating the value of its credit default portfolio to prop up the company's perceived value. The company's credit-default-swap (CDS) portfolio was used to protect against loan defaults, including subprime mortgage defaults. The losses in AIG's first quarter were largely due to devastating losses of $9.1 billion in the company's CDS portfolio.

Willumstad inherits big problems with the company and mob of angry shareholders. He will need to seek to bring a sense of trust and confidence back to the company's management. Willumstad was named chairman of AIG's board back in 2006, after being president and COO at Citigroup, so he is a man that knows that company well. Hopefully, he can bring some change to the company.

It Will Take Time
Willumstad will need time to change the course of the company. This will be a large task, and I would not recommend diving into the stock. The shares have taken a beating, but with good reason. I would stay on the sideline until some more goods news develops from the company. (Read more on analyzing a company's financials in Financial Statements: Introduction and What You Need To Know About Financial Statements.)

The Bottom Line
The ousting of Sullivan is a good move for AIG, but it's only the beginning. Willumstad inherits a company with some clear problems with its balance sheet. It's an insurer that has lost a lot of the trust of its shareholders and the market. The turnaround will likely be long, so I would wait till more news develops before looking at the shares.

For related reading, check out Playing The Sleuth In A Scandal Stock.

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Tickers in this Article: AIG, C, MER, WB

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