After $170b US bailout, AIG to pay $100m in bonuses
WASHINGTON - Despite being bailed out with more than $170 billion from the Treasury and Federal Reserve,
An official in the Obama administration said yesterday that Treasury Secretary Timothy F. Geithner had called AIG's government-appointed chairman, Edward M. Liddy, on Wednesday and asked that the company renegotiate the bonuses.
Administration officials said they had managed to reduce some of the bonuses but had allowed most of them to go forward after the company's chief executive said AIG was contractually obligated to pay them.
In a letter to Geithner, Liddy wrote: "Needless to say, in the current circumstances, I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them."
The bonuses will be paid to executives at American International Group's Financial Products division, the unit that wrote trillions of dollars' worth of credit-default swaps that protected investors from defaults on bond backed by subprime mortgages.
An AIG spokeswoman said the company had no comment beyond the text of the letter.
In his letter to the Treasury, Liddy said AIG hoped to reduce its retention bonuses for 2009 by 30 percent. He said the top 25 executives at the Financial Products division had also agreed to reduce their salary for the rest of 2009 to $1.
But Liddy defended the need to continue paying bonuses if AIG was going to unwind the rest of its disastrous mortgage-related business at the lowest possible cost to taxpayers.
"We cannot attract and retain the best and the brightest talent to lead and staff the AIG businesses - which are now being operated principally on behalf of American taxpayers - if employees believe their compensation is subject to continued arbitrary adjustment by the US Treasury," he wrote Geithner. The government owns nearly 80 percent of the company.
The bonuses were first reported by The
Of all the financial institutions that have been propped up by taxpayer dollars, none has received more money than AIG and none has infuriated lawmakers more with practices that policy makers have called reckless.
Liddy, whom Federal Reserve and Treasury officials recruited after AIG faltered last fall and received its first round of bailout money, said the bonuses and "retention pay" had been agreed to in early 2008 and were for the most part legally required.
The company told the Treasury that there were two categories of bonus payments, with the first to be given to senior executives. The administration official said Geithner had told AIG to revise them to protect taxpayer dollars and tie future payments to performance.
The second group of bonuses cover some 2008 retention payments from contracts entered into before government involvement in AIG that the company says it is legally obligated to fulfill. The official said Treasury concluded that those contracts could not be broken.
Ever since it was to be bailed out by the government last fall, AIG has faced accusations that it was compensating people who caused perhaps the biggest financial crisis in American history.
AIG's main business is insurance, but it had a unit called AIG Financial Products that sold hundreds of billions of dollars' worth of derivatives - the notorious credit-default swaps that nearly toppled the company last fall.
In his letter to the Treasury, Liddy said that AIG was required to pay about $165 million in bonuses on or before March 15. The company had already paid $55 million in December, but the rest was about to come due.
The bonus plan covers 400 employees, and the bonuses range from $1,000 to $6.5 million. About seven executives at the financial products unit were entitled to receive more than $3 million in bonuses.
Under a deal reached last week, AIG agreed that the top 50 executives in the financial products division would get half of the $9.6 million they were supposed to get by March 15. The second of their bonuses would be paid out in two installments in July in September. To get the rest, Treasury officials said, AIG would have to show that it had made progress toward its goal of selling off business units and repaying the government.
AIG had set up a special bonus pool for the financial products unit early in 2008, before the company's near collapse, when problems stemming from the mortgage crisis were becoming clear and there were concerns that some of the best-informed derivatives specialists might leave. It locked in a total amount, $450 million, for the financial products unit.
Only part of the payments had been made by last fall, when AIG nearly collapsed. Another installment is due this month - to people who, it is now clear, were at the very heart of AIG's worldwide conflagration.