Richard Mucci, Chairman, New York Life International

How do you view the current financial crisis in the US?
I wish I could predict it exactly... The fundamental problem is that lending institutions, primarily banks, lent money to people who could not repay debt as well as they have done in the past. So, if you look at mortgage investments, the number of defaults turned out to be three to 10 times higher than what they expected. That puts a strain on the value of assets on banks’ balance sheets. And higher the leverage, the bigger the problem becomes. For instance, Lehman Brothers’ leverage was 45 to 1. That means if you have a billion dollars of assets, your capital position is only a couple of million dollars.

At the individual level, people were over extended. So as pressure started pushing prices down, they thought that they were already leveraged too far, and could not sell their property anymore, and it goes down even further. But at the corporate level, the thing that undermines all is that the banks started handing over the underwriting of mortgages and loans to other parties that did not have the responsibility for the risk. So if somebody else underwrites a loan and gets paid for getting more loans without carrying the risk of their default, there is no reason to underwrite carefully.

How is this crisis affecting your company?
Our investment strategy has always been conservative, and we have very small exposure to the subprime mortgage market. But as the economy slows, it affects all. Although in some Asian markets, where American International Group (AIG) has a presence, there is a little bit of fear, but we expect it to come back to normal levels.

We actually see this as an opportunity. The opportunity to tell our story that we are different from other insurance companies and financial institutions. And because we have extra capital, there may be financial opportunities for us, too, either investment assets, such as high quality securities where there is less of a market for those securities today, or invest in new businesses.

Now that you are in a strong cash position, would you be interested in purchasing some of AIG’s assets?
AIG is selling its assets because it needs cash to raise money to pay back their loan to the government. And that is creating a churn in the marketplace. We are keeping our eyes and ears open to potential combinations. We may not do any deal or may do several. There is a lot of money in motion now, a lot of restructuring is going to happen… It would be unusual for any strong company not to look at AIG’s assets, but it would be premature to say if any of its assets would be a strategic fit for New York Life.