Published March 16, 2009

AIG plans huge bonuses after US$170b bailout

Says its hands are tied because of bonus agreements

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(WASHINGTON) American International Group (AIG) is giving its executives tens of millions of dollars in new bonuses even though it received a taxpayer bailout of more than US$170 billion dollars.

Mr Liddy: Will testify on AIG's bailout at a US congressional hearing

AIG is paying the executive bonuses of US$165 million to meet a deadline yesterday, but the troubled insurance giant has agreed to administration requests to restrain future payments.

The Treasury Department determined that the government did not have the legal authority to block the current payments by the company. AIG declared earlier this month that it had suffered a loss of US$61.7 billion for the fourth quarter of last year, the largest corporate loss in history.

Treasury Secretary Timothy Geithner has asked that the company scale back future bonus payments where legally possible, an administration official said on Saturday.

This official, who spoke on condition of anonymity because of the sensitivity of the issue, said that Mr Geithner had called AIG chairman Edward Liddy last Wednesday to demand that Mr Liddy renegotiate AIG's current bonus structure.

Mr Geithner termed the current bonus structure unacceptable in view of the billions of dollars of taxpayer support that the company is receiving, this official said.

In a letter to Mr Geithner dated Saturday, Mr Liddy informed Treasury that outside lawyers had informed the company that AIG had contractual obligations to make the bonus payments and could face lawsuits if it did not do so.

Mr Liddy said in his letter that 'quite frankly, AIG's hands are tied' although he said that in light of the company's current situation, he found it 'distasteful and difficult' to recommend going forward with the payments.

Mr Liddy said that the company had entered into the bonus agreements in early 2008 before AIG got into severe financial straits and was forced to obtain a government bailout last fall.

The large bulk of the payments at issue cover AIG Financial Products, the unit of the company that sold credit default swaps, the risky contracts that caused massive losses for the insurer.

A white paper prepared by the company says that AIG is contractually obligated to pay a total of about US$165 million of previously awarded 'retention pay' to employees in this unit by Sunday, March 15. The document says that another US$55 million in retention pay has already been distributed to about 400 AIG Financial Products employees.

The company says in the paper that it will work to reduce the amounts paid for 2009 and believes that it can trim those payments by at least 30 per cent.

Bonus programmes at financial companies have come under harsh scrutiny after the government began loaning them billions of dollars to keep the institutions afloat. AIG is the largest recipient of government support in the current financial crisis.

AIG also pledged to Mr Geithner that it would also restructure US$9.6 million in bonuses scheduled to go to a group that covers the top 50 executives. Mr Liddy and six other executives have agreed to forgo bonuses.

The group of top executives getting bonuses will receive half of the US$9.6 million now, with the average payment around US$112,000.

This group will get another 25 per cent on July 14 and the final 25 per cent on Sept 15. But these payments will be contingent on the AIG board determining that the company is meeting the goals that the government has set for dealing with the company's financial troubles.

In another development, Mr Liddy is expected to testify on Wednesday at a US congressional hearing on the bailout of AIG, two congressional aides said on Saturday.

The company's bonus pay practices are expected to be one focus of the session, as well as the impact on the economy of AIG's problems and the government's efforts to save it.

Separately, AIG is expected to disclose the identity of counterparties to the credit default swaps that it wrote to guarantee complex debt securities, a source close to the company said on Saturday. The timing of the announcement was not yet clear. -- AP, Reuters