Liddy Reacts To Slam By Financial Products Exec

NU Online News Service, March 26, 12:26 p.m. EDT

There was no discrepancy between American International Group's chief executive approving an expedited payment of bonuses and his remarks that he was unhappy with them, a company spokesperson said yesterday.

AIG CEO Edward Liddy wrote Treasury Secretary Timothy Geithner on March 12, stating that he found the necessity to pay retention bonuses to executives at the troubled AIG Financial Products unit "distasteful and difficult." He used the same terms in an appearance before a congressional committee.

But yesterday, in an open letter to Mr. Liddy in The New York Times announcing his resignation, Jake DeSantis, an executive vice president for the AIG Financial Products' profitable commodities section, said Mr. Liddy left him feeling "betrayed" and may have done an about-face under political pressure after approving early payment of the bonuses.

Mr. DeSantis wrote that most of the employees at Financial Products had "nothing to do with the large losses" caused by the section dealing with credit default swaps, which forced the company to seek a government rescue.

"My guess is that in October, when you learned of these retention contracts, you realized that the employees of the Financial Products unit needed some incentive to stay and that the contracts, being both ethical and useful, should be left to stand," his letter said.

Mr. DeSantis wrote that this realization may have been why Mr. Liddy "decided to accelerate by three months more than a quarter of the amounts due under the contracts." The move, he said, signaled to employees that they had Mr. Liddy's support, "and was hardly something that one would do if he truly found the contracts 'distasteful.' That may also be why you authorized the balance of the payments on March 13."

He wrote that the decision releasing $40 million in bonus money was an ethically and financially astute move, but "it seems to have been politically unwise. It's now apparent that you either misunderstood the agreements that you had made–tacit or otherwise–with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds."

An AIG spokesperson, Christina Pretto, said there was "nothing inconsistent" about Mr. Liddy's statements, adding that his decision to pay the bonuses was based on legal analysis of those contracts, and were grounded in a risk/reward system for employees who are working to unwind a Financial Products business with a $1.6 trillion derivatives book

He has made it clear, she said, that they were put in place long "before he came [to AIG], and he does find them distasteful. This is what he inherited."

She released a statement that "Ed [Liddy] deeply appreciates the frustration expressed in this letter, and believes that the recent vilification and harassment of AIG employees is grossly unfair and unwarranted."

"As Ed noted in his testimony to Congress, most of today's FP employees had nothing to do with the credit default swaps that were at the heart of the company's liquidity crisis," she said. "FP employees continue to successfully execute precisely the job asked of them: de-risk and unwind the FP business. They have reduced the trade count from 44,000 to 28,000–nearly 40 percent."