After announcements that American International Group hadadopted voluntary restrictions on executive compensation thateliminate management bonuses this year, a Maryland congressman isdemanding that the company provide more disclosure concerningretention bonuses it is paying to retain senior officials.

In a letter, Rep. Elijah Cummings, D-Md., accused AIG of“disingenuous sleight of hand” by disavowing the payment ofperformance bonuses to senior executives in 2008, but thencontinuing to provide retention bonuses previously announced inSeptember.

He said AIG was doing this by having the approximately 130 topofficials involved agree to delay receiving their retentionpayments–with a first installment postponed from this month untilApril 2009, and the second installment moved from December 2009 toApril 2010.

An AIG representative, Joe Norton, confirmed receipt of theletter, but said AIG would have a comment at a later date.

Mr. Norton also cited a joint statement issued Oct. 16 by AIGChief Executive Officer Edward Liddy and New York Attorney GeneralAndrew Cuomo, in which Mr. Liddy agreed to several actions,including close scrutiny of AIG compensation programs.

In that statement, Mr. Norton said, Mr. Cuomo noted specificallythat “these actions are not intended to jeopardize the hard-earnedcompensation of the vast majority of AIG's employees–includingretention and severance arrangements–who are essential torebuilding AIG and the economy of New York.”

In his letter, Rep. Cummings cited the $85 billion loan thegovernment provided in September “to keep AIG afloat.” That programhas since been superseded by another agreement that increased thetotal cash available to AIG up to $150 billion but reduced theinterest cost and further diluted the stake that privateshareholders have in the company.

“Against this background–and given the massive layoffs occurringat other major financial entities, including Citibank–the Americantaxpayers have a right to know why senior executives at AIG, whoare frankly lucky to still have their jobs, need to receiveadditional bonus payments of any kind to retain them at AIG,” Rep.Cummings said.

He asked in the letter that AIG disclose:

o Which executives in which AIG divisions are receiving theretention payments, and how much they are receiving.

o The base salaries of executives receiving the retentionpayments.

o Information as to whether all executives are delaying receiptof their payments until next April or, if any executive is notdelaying receipt of the payments, which executives are receivingpayments this month and how much each executive is receiving.

“Why is it necessary for any AIG executive to receive aretention payment–and why is it necessary that these be scheduledfor April 2009 and April 2010?” Rep. Cummings asked. He also wantsto know what will be the source of the retention payments providedin 2009 and 2010.

Late last month, AIG announced it had adopted voluntaryrestrictions on executive compensation that eliminate managementbonuses this year and set Mr. Liddy's pay at $1. The company saidthere will be no 2008 annual bonuses and no salary increasesthrough 2009 for AIG's top-seven officer Leadership Group, and nosalary increases through 2009 for the 50 next-highest executives,in addition to other bonus, severance and retention awardrestrictions.

AIG's spending has been under scrutiny since September, when itgave the government a 79.9 percent interest in the company to stayliquid and obtain government loan guarantees now totaling $150billion.

AIG said it is also developing a funding structure to ensurethat no taxpayer dollars are used for annual bonus or future cashperformance awards for AIG's “Senior Partners”–the top 60 membersof management.

Mr. Liddy said AIG's senior executives recognize the company'sobligation to taxpayers. “We are extremely grateful for theassistance we have received, and we know we have an obligation touse that assistance to help AIG recover, contribute to the economyand repay taxpayers,” he said.

“This action by the senior management team demonstrates not onlythat we understand our obligation to taxpayers and shareholders,but also that we are committed to the future success of thisorganization,” he added.

Under the voluntary restrictions announced last month:

o Mr. Liddy–who joined AIG on Sept. 18, after the governmentbailout was arranged–will receive an annual base salary of $1 for2008 and 2009. His initial compensation will consist entirely ofequity grants, “showing his confidence in AIG and its team,” thecompany said.

o Mr. Liddy will not receive an annual bonus in those years,although he may be eligible for a special bonus for extraordinaryperformance payable in 2010.

o Mr. Liddy will not be eligible for severance payments.

o Paula Rosput Reynolds, vice chair and chief restructuringofficer, who joined AIG in October, will receive no salary or bonuswhatsoever in 2008. In 2009 and beyond, other than her base salary,any compensation she receives will be tied directly to the progressof the restructuring efforts.

o The other five members of AIG's top-seven officer LeadershipGroup will not receive annual bonuses for 2008 or salary increasesthrough 2009.

o AIG's Senior Partners will not earn long-term performanceawards in 2008. They will not receive salary increases in 2009, andtheir 2008 and 2009 annual bonuses will be limited.

In addition to Mr. Liddy foregoing any severance payments, therewill be restrictions on severance payments to members of thismanagement group, which exceed government Troubled Asset ReliefProgram severance restrictions.

“We believe these actions demonstrate that we are focused onovercoming our financial challenges so AIG can return value totaxpayers and shareholders,” Mr. Liddy said.

Meanwhile, AIG will receive $40 billion from the U.S. Treasury'sTroubled Asset Relief Program in exchange for four million sharesof AIG Series D Preferred Stock. The transaction also includes awarrant for the Treasury to buy a number of shares of common stockof AIG equal to 2 percent of the issued and outstanding shares, orjust under 53.8 million shares. The warrant has a 10-year term.

AIG said proceeds will be used to reduce outstanding borrowingsunder the original $85 billion loan extended by the Federal ReserveBank of New York in September. The maximum capacity of that creditagreement will be reduced from $85 billion to $60 billion, AIGnoted.

The Series D Preferred Stock, at $5 par value per share, willpay a dividend of 10 percent annually, according to thecompany.

An AIG representative said that Mr. Liddy intends to go toWashington, once the company makes progress on selling assets andpaying off its debt to the government, to lower the 10 percentdividend on preferred shares taxpayers are receiving. Mr. Liddyalso believes the 79.9 percent stake the government has in thecompany is too high because it chokes out investment from theprivate market, the representative said.

The representative stressed that any action taken by Mr. Liddyon this matter would be after progress is made on selling assetsand paying off the government debt.

“We are starting to announce some small assets sales,” therepresentative said, but he added these were not ones that wouldmake good progress toward paying down the debt.

AIG also announced that a federally financed operation has beenlaunched to help it deal with its debt problems. Maiden Lane III(MLIII), a financing entity created by the Federal Reserve Bank ofNew York, was designed to purchase multisector credit debtobligation exposure, on which AIG has written credit default swapcontracts.

The creation of ML III was announced last month, along with aseparate entity, Maiden Lane II, which will hold residentialmortgage-backed securities (RMBS) from AIG's securities lendingcollateral portfolio.

An AIG representative said ML II has not yet been set up by theFederal Reserve.

In announcing ML III, AIG said the financing entity “willpurchase up to approximately $70 billion of multisector CDOexposure on which AIG has written CDS contracts. Approximately 95percent of the write-downs that AIG Financial Products (AIGFP) hastaken to date in its CDS portfolio were related to multisectorCDOs.”

AIG also announced that ML III reached agreements with AIGFP'sCDS counterparties to purchase approximately $53.5 billionprincipal amount of CDOs.

To date, AIG said $46.1 billion of such CDOs have been purchasedand, in connection with the CDO purchase, the CDS transactions havebeen terminated.

According to a regulatory filing last week, “settlement on theremaining $7.4 billion notional amount of CDS is contingent uponthe ability of the related counterparty to obtain the relatedmultisector CDOs and thereby settle with ML III and terminate suchCDS with AIGFP.”

ML III has $5 billion in equity funding from AIG, and up toapproximately $30 billion from the FRBNY, of which approximately$15.1 billion has been funded to effect purchases of CDOs, thecompany explained.

The company announced that for an undisclosed amount it isselling its interest in Canada-based Tenaska Marketing Ventures,Tenaska Gas Storage and Tenaska Marketing Canada (collectivelyTMV).

Affiliates of AIGFP have owned 50 percent of TMV's holdingcompanies since April 2007. That interest will now be sold back toTenaska, which owns the other 50 percent of TMV's holding companiesand serves as manager TMV.

Ms. Reynolds said “AIG has benefited from its investment in TMV.That investment, however, does not fit with our strategic insurancefocus and the businesses in which we intend to remain as werestructure.”

In addition, the company announced it will sell AIG Private BankLtd., its Switzerland-based subsidiary, to Aabar Investments PJSC,a global investment company based in Abu Dhabi, for $254 millionplus $83 million in assumed debt. The Zurich-based firm providesbanking and structured wealth management solutions to private andinstitutional clients.

An AIG representative, David Monfried, said this deal will be“smaller compared to others that I expect we'll be announcing downthe line.”

In September, the company announced the sale of AIG-FinancialProducts' 50 percent interest in London City Airport to Stamford,Conn.-based Global Infrastructure Partners of New York and Londonfor an undisclosed amount. Some reports said the price may havebeen as high as $750 million.

“…[G]iven the massive layoffs occurring at other major financialentities…the American taxpayers have a right to know why seniorexecutives at AIG, who are frankly lucky to still have their jobs,need to receive additional bonus payments of any kind to retainthem at AIG.”

Rep. Elijah Cummings, D-Md.