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28 November 2023

Fury heats up after new AIG bonuses

A new furor erupted Wednesday as AIG revealed plans to pay $100 million in bonuses a year after similar payments by the bailed-out insurance giant ignited a political firestorm.

President Barack Obama was "frustrated and angry" about the hefty payouts, according to a spokesman, while the government's pay czar in charge of compensation at bailed-out companies called the payments an "outrage" that were nonetheless legally binding.

AIG said it would make the payouts under a deal in which employees agreed to accept less than they were owed in exchange for early payment.

Asked about the new bonuses, White House deputy press secretary Bill Burton said: "Obviously, the president is frustrated and angry that Wall Street continues to have the sense that excessive compensation should reward some of the excessive risk taking we've seen over... the last couple years on Wall Street, things that brought us to the brink."

Kenneth Feinberg, the pay czar designated under the Troubled Asset Relief Program (TARP), said the payments were part of legally binding contracts that must be paid despite the outrageous nature of the bonuses.

"These are old grandfather contracts that have the legal force of law,"  Feinberg said in an ABC television interview.

He said that the government was working to recoup part of the payments under agreements reached with AIG employees.

"We are making some progress," he said. "I do not for a minute ignore the outrage out there which I share. But the fact of the matter is we've got to abide by the law, we've got to work as best we can to get as much of this money back as we can and frankly we are doing a very, very good job, I think, in getting as much of this money as we can pursuant to the rule of law."

US officials have argued that the government was unable to stop the legally binding payments to the employees at the troubled Financial Products division that nearly sank AIG after a meltdown in the US housing market.

Nonetheless, news of the latest bonuses triggered fresh anger, including criticism of the Obama administration.

Republican Senator Charles Grassley said of the latest bonuses, "AIG has taxpayers over a barrel. The Obama administration has been outmaneuvered."

American International Group said in a statement that about 97 per cent of employees with its troubled Financial Products division "have volunteered to reduce their upcoming 2010 payment."

The moves will help achieve the company's "giveback target" of reduced bonus payments in an effort to stem the type of blistering criticism that erupted a year ago.

US officials say only about $19 million has been returned from 2009 payments to AIG employees despite pledges to return 45 million dollars.

AIG promised to work with those employees "to round out the remaining amount of our giveback target over the next few months."

The payments stem from employment contracts signed in 2007 that fall outside the jurisdiction of Feinberg, who oversees compensation at companies receiving bailout money from TARP.

AIG neared collapse in September 2008, unable to meet its obligations for contracts written to insure mortgage securities and related assets without sufficient capital

The Federal Reserve, fearing a shock to the global financial system in the event of an AIG default, provided a loan of 85 billion dollars to AIG in September 2008 in what would be the first portion of a staggering bailout worth some $180 billion, some of which came from TARP.

Separately, media reports said Bank of America had set aside approximately four billion dollars for bonuses to employees of its investment bank and global markets unit.

The payouts will be 19 per cent of the $23 billion in revenue generated last year by those businesses.

Bank of America is no longer governed by TARP pay restrictions, having repaid the government for its capital injection, but many critics say the big-bonus culture may encourage the type of risky activities that triggered the global financial crisis.