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AIG Chief Executive Admits 'Mistakes,' Touts Progress
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Wednesday, March 18, 2009; 5:38 PM
The chief executive of insurance giant American International Group told Congress today that he allowed millions of dollars in "distasteful" bonuses to be paid to top employees of a troubled division because he was trying to prevent that business from collapsing, but he said he has asked recipients to return part of the payments in view of public outrage over them.
Edward M. Liddy, a former Allstate Corp. chief executive who took over the helm of AIG in September at the government's request, testified before a House panel that he shares the anger of taxpayers at the company and would not have approved the millions of dollars in bonuses if he had been in charge at the time they were authorized. He said AIG has been making progress in winding down a part of the firm that caused the problems, but he noted that the division -- AIG Financial Products -- still has a $1.6 trillion portfolio that continues to impose "substantial risk."
Explaining his decision to let the retention bonus payments go ahead, Liddy told a subcommittee of the House Financial Services Committee, "I was trying desperately to prevent an uncontrolled collapse of that business." He referred to $165 million in retention bonuses that were paid last weekend, out of a total of more than $400 million in such bonuses payable for 2008 and 2009.
But in view of public outrage over the bonuses, Liddy said he asked employees this morning to return the payments. He said employees who received bonuses of $100,000 or more were being asked to return "at least half," and that some have already volunteered to give up 100 percent of their payments.
"We will work to ensure the highest level of employee participation," he said.
In response to questions, Liddy said AIG has kept the Federal Reserve informed of its plans, including the bonus payments, but had not directly discussed them with the Treasury Department or Congress. He denied that there was "any intent to deceive or hide anything" from Treasury or the Congress.
Liddy said additional retention bonuses worth as much as $200 million are scheduled to be paid in March 2010 for work not yet completed but that, given the furor over the issue, "there is no way" those bonuses will be paid.
He disputed the widely used figure of $173 billion for the amount of AIG's total federal bailout, insisting that "the amount of money that we need to return to American taxpayers" is currently $78 billion. He said AIG has not drawn on an additional $30 billion made available by the Federal Reserve.
Liddy said AIG has "made great progress in winding down" its financial products business, reducing its portfolio by about $1.1 trillion. But with $1.6 trillion still on the books, "there is a risk that that could blow up," he said. "If it explodes, it could cause irreparable damage" to the progress already made and could jeopardize a massive federal bailout of the entire company, Liddy added. He said of the bonus payments, "in the context of the $1.6 trillion and the money already invested in us, we thought that was a good trade."
The AIG chief, who said he came out of retirement to run the company for a salary of $1 a year, told the subcommittee he fears that "the damage is done" from the bonuses and that employees who are needed to wind down the financial products division are likely to return them "with their resignations." He praised those employees for reducing the risk to American taxpayers through their efforts so far.
"We have to keep shrinking this business dramatically and quickly so it doesn't get away from us," he said.
In a tense exchange with the committee chairman, Rep. Barney Frank (D-Mass.), who demanded the names of the employees who received bonuses, Liddy said he did not want to make the names public because of threats to the executives and their families. He read a threat from an unspecified person who wrote, "All of the executives and their families should be executed with piano wire around their necks."