Case Study

Case Study: American International Group and the Bonus Fiasco
Point of View
In the year 2008, the United States faced a financial problem when housing prices experienced a
sudden drop, which triggered a full-fledged financial crisis. The equity bases of major banking
businesses were destroyed by loan losses. Not only did the banks experience this but also the
insurance companies, one of which is the American International Group, which is considered one of
the respectable insurance companies around the globe. The said firm became affected when the rating
organizations abruptly reduced its credit history.
Statement of the Problem
The United States dealt with problems regarding its financial system, and American International
Group (AGC), one of the largest insurance companies, was one of the companies affected by the said
problems.
Why wasn't the insurance company, American International Group, able to recover the losses? What
is the reason behind it?
What did the American International Group do with the bailout money that the government gave
them?
Objectives
Short-term Objectives
To ensure the efficient and effective manufacture of high-quality goods, improve the management
system
To maintain a stable economic state
To win back the trust of the clients of American International Group to the company
Long-term Objectives
To accelerate business growth by increasing marketing share.
To gain market share through innovation, more sales, stronger brand recognition, and economies of
scale,
To be able to build long-term relationships with clients
Areas of Consideration
Strengths
• Rapid growth and Expansion creating limitless wealth

• Employees received bonuses
Weaknesses
• Credit default swaps
• Uncontrolled expenses incurred by the company
• Mismanagement and recklessness of the managers in charge
Opportunities
• Government bail out
•Taxation Policy
Threats
• Economic crisis
• Lower credit that the company sufferers Strengths American International Group, like any other
institution in the U.S, has gained its rapid growth and expansion, which covers the area of the
insurance industry.
In line with this, the market was able to create limitless wealth. It became a strength for the group
since this was a ticket for their development; to expand and grow; to reach more target markets that
would serve as their ticket to achieve high profit and popularity, especially since AIG has a strong
brand name and is known for having a stable financial position before the year 2008. The group also
gives incentives to the managers and employees, which is a strength because this will motivate them
to work hard, from which the company will benefit.
Weaknesses The group has this financial product called CDSs, or credit default swaps, which
represents an insurance swap that covers the holders of mortgage-backed securities. This becomes
their weakness since the value of the securities will vary and AIG will bear the losses as the
securities go down but will give them benefits if the value goes steady or high. In the short term, this
type of financial product bears great risks. Another weakness of the group is its uncontrolled
expenses, where they spent $86,000 on a luxurious English hunting trip—an activity that doesn’t
benefit the company. This leads to another weakness, which is the in-charge or managers’
recklessness and mismanagement; in fact, they even turn one of their strengths into a weakness by
giving lavish bonuses and even practicing corruption as they incurred and gave bonuses to 53 ghost
employees, or those who were no longer working for the company.
Opportunities The group was given an opportunity to rise after their fall with the aid of the
government’s bailout program, which extended and lets them payback when they become profitable,
buy preferred stock, or buy distressed assets from the company that suffers losses to help them
recover and clean up its financial records or balance sheet. The US government offered this program
to AIG and provided $85 billion to keep the company from going bankrupt. Additionally, the current
taxation policy will have a substantial influence on how the company will operate and provide great
opportunities for top players like AIG to boost their profit margins.
Threats The economic crisis brought major losses to businesses in the United States, and one of them
that was greatly affected is the American International Group. In September 2008, the company was
in financial distress and their credit rating dropped, which caused them high leverage and triggered
their requirements to post collateral with the company’s counterparties.

Case Study

Uploaded by

Copyright:

Available Formats

Case Study

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Case Study

Uploaded by

Copyright:

Available Formats

Case Study: American International Group and the Bonus Fiasco

Statement of the Problem

To maintain a stable economic state

To accelerate business growth by increasing marketing share.

To be able to build long-term relationships with clients

• Rapid growth and Expansion creating limitless wealth

• Credit default swaps

• Uncontrolled expenses incurred by the company

• Mismanagement and recklessness of the managers in charge

• Government bail out

You might also like