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AIG Seeks Clearance For More Bonuses
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The Treasury declined to comment specifically on the bonuses due this month. In a statement, a department spokesman said, "Companies will need to convince Mr. Feinberg that they have struck the right balance to discourage excessive risk taking and reward performance for their top executives. . . . We are not going to provide a running commentary on that process, but it's clear that Mr. Feinberg has broad authority to make sure that compensation at those firms strikes an appropriate balance."
Feinberg did not respond to an e-mail seeking comment.
The recent discussions between the company and Feinberg illustrate how politically sensitive the bonuses have become, both for AIG and for the Obama administration. No development in the government's bailout of financial firms has angered lawmakers and ordinary Americans more than the disclosure in mid-March that the global insurer was paying more than $165 million in retention bonuses. They were aimed at retaining 400 employees at AIG Financial Products, the troubled unit whose complex derivative contracts nearly wrecked the global insurance giant.
Ultimately, some of these employees vowed to return more than $50 million -- but not before the resulting firestorm threatened to undermine the government's effort to rescue the financial system. Lawmakers, including key allies of the administration, sponsored bills that would have levied harsh taxes on AIG and other bailout recipients offering bonuses to their executives.
Afraid of such congressional action, firms rushed to pay back federal aid, while others shied away from cooperating with the government in some of its bailout programs. Some initiatives had to be scaled down as a result.
The issue of bonuses, which had earlier been viewed by officials as minor relative to the larger problems in the financial system, began to consume the attention of top officials within the Treasury and Federal Reserve. Geithner attended long meetings to review payments, even those for low-ranking AIG executives.
Separately this week, a Citigroup analyst warned that AIG might be worthless to shareholders if or when it ever pays back the billions it owes the U.S. government.
"Our valuation includes a 70 percent chance that the equity at AIG is zero," Joshua Shanker of Citigroup wrote in a note to investors. He cites the continuing risks posed by the company's exotic derivative contracts, called credit-default swaps, and its sale of assets at low prices. AIG's stock plummeted by more than 25 percent yesterday.
