The head of AIG said he was trying to prevent the company from collapsing when he allowed the payment of $165 million in bonuses that have stoked outrage stretching from the White House to Main Street.
Edward Liddy, who took over as chairman and chief executive of American International Group in September when the government stepped in with the first of a series of rescues, said he had asked employees receiving more than $100,000 in bonuses to repay at least half.
“Americans are asking quite simply, Why pay these people anything at all?” Liddy told a House of Representatives subcommittee on Wednesday. “Here’s why: I am trying desperately to prevent an uncontrolled collapse of that business.” Liddy said some employees had already given back their entire bonuses. Some had taken payouts and left the company.
One AIG executive who agreed to return his bonus was Douglas Poling, who received the largest payout of more than $6.4 million, according to a report in Thursday’s Wall Street Journal, quoting a person familiar with the matter.
Poling, is an executive vice president responsible for energy and infrastructure investments, the Journal said. When contacted by the paper, Poling declined comment.
UNDER FIRE FROM PUBLIC, POLITICIANS
AIG has drawn intense fire from the public, politicians and President Barack Obama for accepting up to $180 billion in government aid and then handing out fat bonuses.
Liddy said the payouts were necessary to retain top employees with the specialized knowledge to dispose of $2.7 trillion in complex securities that ended up dragging the insurer to the brink of collapse last year.
He said the company whittled down that amount to $1.6 trillion, and he was worried that employees responsible for winding down the rest would return their bonuses “with their letters of resignation,” which would make the task tougher.
But on Thursday, The Washington Post reported that the work of defusing the most dangerous bets placed by AIG was largely concluded before the company gave out bonuses to employees it said it needed to retain to avoid a financial meltdown.
Citing company documents and interviews, the newspaper said the outstanding volume of risky and highly complex derivatives had been reduced to roughly $13 billion from $78 billion by the end of December, the Post said, citing the company’s financial filings.
Two executives with AIG’s Financial Products unit were cited as saying the hardest work was complete and their focus has shifted to the resolution of a vast but less risky portfolio of bets on more straightforward financial instruments.
“PEOPLE ARE RIGHT TO BE ANGRY” - OBAMA
Fury over the AIG bonuses threatens to undermine Obama’s efforts to solve the credit crisis and pull the economy out of a deep recession. He has said he might have to ask Congress for money beyond a $700 billion bailout fund approved in October. “People are right to be angry. I’m angry,” Obama said on Wednesday.
Many voters view the financial rescues as free handouts to wealthy executives who made bad decisions, and the big bonuses fuelled that anger.
“It is morally reprehensible and fiscally irresponsible to expect bonus money for bringing a corporate giant to its knees,” Democratic Representative Carolyn Maloney said.
Another Democrat, Representative Paul Hodes, quipped that AIG stood for “arrogance, incompetence and greed.”
Channeling the populist sentiment, House lawmakers will vote on a bill on Thursday to recoup most of the bonuses paid to AIG executives. The bill would impose a 90% tax on bonuses for executives whose incomes exceed $250,000. The tax would apply to executives of any company that received at least $5 billion in government bailout money.
Representative Barney Frank, the Democrat who chairs the House Financial Services Committee, pressed Liddy to release the names of those who received bonuses and said he intended to subpoena the information.
Liddy refused, citing concerns for the safety of his employees, and read aloud what he said were examples of death threats that had been received.
There was some concern that the firestorm in Washington would turn off the big private investors, such as hedge funds, the government needs to help stabilize the financial system.
New York Attorney General Andrew Cuomo, who has subpoenaed AIG for a list of those who received bonuses, said asking employees to give back half the money was “too little too late” and would cover only 298 of 418 bonus recipients.
“If AIG has nothing to hide and is not embarrassed about these payments, they should turn over the list now. The era of shrouding huge bonuses in secrecy must end,” he said in a statement. “We prefer not to go to court on this matter, but AIG is leaving us little choice.”
In addition, the US Justice Department is working with the Treasury to determine how it might go about recovering the bonuses, Attorney General Eric Holder said. (Reuters)