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AIG: The Optimistic View from Croatia

The newest CEO of American International Group, Robert Benmosche is vacationing in Croatia where he owns a "breathtaking" million-dollar villa. But that didn't stop him from hyping his new company and boosting its stock price, perhaps a bit more than he should have.

Benmosche told Bloomberg News he thinks AIG will be able to repay the money it owes to the U.S. government and that it "will be able to do something for our shareholders as well."

That tidbit sent the stock soaring again. It rose to $35 before retreating, capping a run that started with the rumor of Benmosche's appointment when the stock was only $13.52. Are the optimists who are betting on the direction of the shares right? We hope so because, after all, our money's in the mix too. As taxpayers we own 80 percent of AIG.

Here's what makes us skpetical, however. First, there's nothing inherently wrong with a CEO taking a well-deserved rest, but Benmosche just started his job at the crippled insurer and already he's on a month-long vacation. And the decisions he's made so far indicate that he's not following in the footsteps of former CEO Ed Liddy, who had to explain to Congress and the Fed why AIG deserved more than $160 billion to keep the company going until it could be sold off.

Instead it seems as if Benmosche, who was an empire builder at MetLife, plans to resurrect former AIG CEO Hank Greenberg's colossus. Under Greenberg AIG became so bloated and unmanageable, with energy assets, aircraft leasing and consumer finance, to name a few, that it was hard to see it as an insurer. It also made it easy for Joe Cassano, who ran the Financial Products unit, to slip under the radar and launch a stealth bomb in the form of unhedged derivatives.

Benmosche doesn't seem to be in a rush to sell, and in fact he stopped an auction of AIG's investment advistory unit, saying instead that he planned to keep it. He promoted Jay Wintrob, who had headed AIG's retirement services, to lead the company's life insurance and retirement business in the U.S. Would Wintrob have taken the job if he thought the business was going to be sold out from under him?

Does Benmosche want AIG to keep both its life and property insurance businesses intact? Generally they aren't exactly compatible, and while MetLife held both units, it was largely a life insurer, with property/casualty as an add-on. Most insurers stick to one or the other. The only big one with a 50/50 split is Hartford Financial, and it got into so much trouble with variable annuities that it had to take TARP money, just as AIG did.

Hopefully Benmosche will enjoy his Croatian vacation. Meanwhile, investors should keep their dollars in their pockets and wait to see what happens when he gets back.