Geithner: AIG to reimburse taxpayers for bonuses
73 AIG employees got at least $1 million, NY's Cuomo says
WASHINGTON (MarketWatch) -- Failed insurance giant American International Group Inc. will be ordered to reimburse the taxpayers up to $165 million for bonuses the company is giving employees, Treasury Secretary Tim Geithner said Tuesday.
Acknowledging "considerable outrage" about the bonus payments, Geithner said AIG will pay the Treasury an amount equal to the bonuses, and the Treasury will deduct that amount from the $30 billion in government assistance that will soon go to the company.
In a letter to congressional leaders, Geithner said the government can't block the payments, which are being made under contracts signed before the government stepped in with billions of dollars to prevent AIG from going bankrupt last September.
Geithner said the Obama administration hasn't given up on efforts to recoup the money from the employees who got the bonuses.
The U.S. government owns about 80% of AIG , but does not run the company's day-to-day operations.
Geithner acted after the chairman of the House Financial Services Committee, Rep. Barney Frank, D-Mass., said that the government should use its controlling interest in the company to force repayment of the bonuses.
"We should look at AIG as owner of the company. The time has come to exercise our rights as owner rather than interfering with contracts between two parties," Frank said at a press conference. "You didn't perform, you don't get bonuses."
Frank added that House Speaker Nancy Pelosi, D-Calif., is considering legislation that would give the government additional control of the company.
AIG paid "retention" bonuses of more than $1 million to 73 employees, including 11 who no longer work at the company, New York Attorney General Andrew Cuomo said Tuesday.
Before Geithner's decision to require the reimbursement, lawmakers on Capitol Hill stepped up their efforts on Tuesday to find some a way to claw back some of the money paid by AIG, which has received $173 billion in federal aid to prevent a bankruptcy that could further spread financial panic around the globe.
Several lawmakers introduced legislation to tax the bonuses.
On Monday, President Barack Obama said his administration would pursue all legal avenues to get the money back. The $165 million in bonuses were paid to employees of the financial products subsidiary, the unit that created and sold complex securities that led to the company's collapse.
Those securities were essentially insurance that guaranteed that investors would not lose money if mortgage-backed securities failed. AIG cornered the market on risk, but could not fulfill its obligations when housing prices fell and the securities went sour.
The investors include major investment banks, hedge funds, and pension funds.
In a letter to Congress sent Tuesday, Cuomo said he didn't agree with AIG's contention that it was obligated by contract to pay the bonuses, noting that the company renegotiated the salaries of the same group of employees.
"AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees, forcing a taxpayer bailout," Cuomo wrote in the letter to the House Financial Services Committee. "Something is deeply wrong with this outcome."
Cuomo said the contracts required the 2008 bonuses to be equal to the 2007 bonuses, even though there were obvious signs that 2008 would be "disastrous." The contracts were signed in April 2008, after Bear Stearns failed because it bet housing prices would never fall.
Cuomo said the biggest single bonus was $6.4 million. Seven employees got more than $4 million each, and the 10 top took a combined $42 million. Cuomo has led an investigation into the bonuses, but has not yet learned the names of those who were paid, he said.
AIG Chairman Edward Liddy will appear before Frank's committee on Wednesday, along with Office of Thrift Supervision Director Scott Polakoff and Government Accountability Office director Orice Williams. Liddy succeeded Robert Willumstad in June 2008.
The chairman of the Senate Banking Committee, Sen. Christopher Dodd, D-Conn., said he wants a full briefing from the Federal Reserve on any conditions the Fed may have put on AIG executive bonuses. "We also want answers regarding where the Fed has been on conditions for these types of bonuses since the rescue effort first began."
At the same time, legislators on Capitol Hill are considering changes to the tax code to limit AIG's bonuses.
Rep. Gary Peters, D-Mich., introduced a bill that would impose a 60% surtax on bonuses over $10,000 paid by a company where the government has a greater than 79% equity stake. Currently, the wording of the bill would apply only to AIG.
Other House members have introduced similar legislation. Rep. Steve Israel, D-N.Y., introduced legislation that would hike taxes on bonuses of corporations receiving federal bailout capital.
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