AIG Reveals Use Of Bailout Cash, Takes Heat For Bonuses

Yielding to congressional demands, American International Group Inc. yesterday revealed the U.S. and foreign financial institutions to which it paid taxpayer bailout money, announcing that it now sees that use of such money should be public.

But the company was under intense fire from the Obama administration and Congress today after its Saturday revelation that it was "contractually obligated" to pay out by Sunday $165 million in previously awarded retention bonuses to employees of its troubled financial products unit.

An aide to Rep. Elijah Cummings, D-Md., confirmed that the congressman planned to send a letter to Treasury Secretary Tim Geithner this morning expressing "outrage" over the payments.

In a letter dated Saturday to Secretary Geithner, AIG Chairman and Chief Executive Officer Edward Liddy said he did not like these arrangements "and [found] it distasteful and difficult to recommend to you that we must proceed with them."

But, he said, "outside counsel has advised these are legal, binding obligations of AIG, and there are serious legal as well as business consequences for not paying."

The company, said Mr. Liddy, cannot attract top talent "if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury."

In releasing its list of entities that received bailout money yesterday, AIG said it "recognizes the importance of upholding a high degree of transparency with respect to the use of public funds. As a result, after close consultation with the Federal Reserve, AIG is disclosing information identifying certain credit default swap counterparties, municipal counterparties and securities lending counterparties."

AIG said before making disclosure it had "consulted with the Federal Reserve about the potential public benefit of counterparty disclosure and the potential that such disclosure would cause competitive harm to AIG or its counterparties."

Fed officials in the face of congressional demands had been supportive of the company's efforts not to disclose the names of those companies that received U.S. bailout cash, which the company began receiving Sept. 16, 2008 and now exceeds $160 billion.

Mr. Liddy also said the identity of the bailout money recipients came after conversations with those "counterparties" and "recognition of the extraordinary nature of these transactions." He said the move will "not change AIG's commitment to maintaining business transaction confidentiality."

Of the billions that went to financial institutions, the top five were listed as: Goldman Sachs, $12.9 billion; Societe Generale, $11.9 million; Deutsche Bank, $11.8 billion; Barclays, $8.5 billion; and Merrill Lynch, $6.8 billion.

Tops among the 20 largest payouts to states were California, $1.02 billion; Virginia, $1.01 billion; Hawaii, $770 million; Ohio, $490 million; and Georgia, $410 million.

The AIG bailout began when the company was forced to come up with collateral to cover severe losses on the credit default swap portfolio of AIG Financial Products Corp.

The company said the government aid in exchange for a 79.9 percent interest in AIG "helped avoid severe financial disruptions by providing liquidity to important financial institutions and municipalities."

AIG said it has used the balance of the public aid it received for debt repayment and capital support for some of its businesses.

The letter concerning bonuses contained a supplement which indicated that AIG had already paid out $55 million in retention pay to about 400 AIGFP employees.

In the letter, Mr. Liddy also confirmed that Secretary Geithner had strongly criticized Mr. Liddy for making the payments in an intense phone call last Wednesday. "I admit that the conversation was a difficult one for me," he said.

AIG's release yesterday of bailout money payouts also indicated that between Sept. 16 and Dec 31, 2008, about $120 billion in aid to AIG has been distributed in the form of cash, collateral and other payouts to banks, municipalities and other institutions in the U.S. and abroad.

This includes $52 billion to repay banks and securities firms who bought credit default swaps from AIG to ensure residential mortgage-backed securities they had purchased.

Another $43.7 billion was used to repay banks and brokers that were customers of AIG's securities-lending business. In this case, AIG collateralized its investments in residential mortgage-backed securities with top-quality securities issued by its life insurance subsidiaries.

In his letter to Mr. Geithner, Mr. Liddy said he believes "there will be considerably greater flexibility to reduce contractual payments in respect of 2009, and AIG intends to use its best efforts to do so."