02-03-2010, 08:36 PM
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Joined: Aug 2006
AIG to pay $100m in bonuses to London-based unit
Quote:Insurance giant AIG is at the centre of a new storm over a second round of ‘outrageous’ bonuses worth more than £62 million being paid to fatcat executives in London and the US.
The payouts were sent out to staff in the same division that was blamed for causing the financial meltdown that almost drove one of the world’s largest companies out of business.
Public fury greeted the news a year ago that executives from AIG’s Financial Products unit were being paid £100 million in bonuses just months after the company was saved with £113 billion of taxpayer’s money in the biggest bailout in US history.
The Serious Fraud Office also launched an inquiry last February into the conduct of the controversial division’s London branch.
But President Obama was powerless to prevent the second bonus installments from being paid out yesterday despite his pledge to ‘pursue every legal avenue to block’ them.
His hands were reportedly tied by contracts signed before the company’s financial freefall.
Coming at a time Mr Obama is preaching frugality in a bid to cut the nation’s mammoth £1 trillion budget deficit, the bonus bombshell is certain to provoke a new wave of public anger and disgust.
Tonight, Treasury Secretary Timothy Geithner called the bonuses an ‘outrageous failure of policy.’
He claimed a new fee on banks proposed in the president’s budget could recoup the payments.
But he was facing calls for his resignation from Republicans who claim he has been outfoxed by the firm.
The bonuses were paid a month early as part of a deal in which employees of the Financial Products Division, which has offices in London, New York and Connecticut, agreed to take about 10% to 20% less than they were owed.
The arrangement with the Treasury was an effort to avoid a repeat of last year’s furor over the first round of bonuses. About 97% of staff still working in the unit are said to have agreed to the deal.
But tens of millions of pounds more will be paid out in March to former employees who did not agree to the concessions.
Member of the division that sold the risky insurance on mortgage- backed securities and other investments that put the company on the brink of collapse in September 2008 received death threats and hate mail after news first broke of their bonus windfall last year.
But the new compromise appeared to have done little to blunt opposition to the bonuses on Capitol Hill.
‘AIG has taxpayers over a barrel, The Obama administration has been outmaneuvered,’ claimed Senator Charles Grassley.
‘And the closed-door negotiations just add to the scepticism that the taxpayers will ever get the upper hand,’ he added.
Another Republican Senator Richard Shelby has accused Mr Geithner of being ‘out of the loop’ on the bonus scandal.
About 200 active and former AIG employees will receive the early payments, which were only made to those who agreed to a cut.
Many employees promised to return some or all of their bonuses last year after the uproar, but of the £28 million in repayments, only £12 million had been returned.
Andrew Goodstadt, a New York lawyer who represents a number of Financial Products employees, said his clients have a legal right to the money under signed contracts. But he said they are willing to accept less ‘to buy peace.’
AIG was deemed the company ‘too big to fail’ by the American government despite making the worst losses in US history when it plunged a further £40 billion into the red in the final quarter of 2008.
The bonus programme was created in early 2008, well before the bail out as the company began to falter and bosses sought to keep employees in place during a period of financial instability.
The Financial Products Division has shrunk by about half over the past year. It has closed its Tokyo and Hong Kong offices and is planning to shut down its London operation later this year.
The administration’s pay czar Kenneth Feinberg claimed the latest bonus payments would lay the issue to rest.
‘It ends this March with the last of these retention payments,’ he said today. ‘Another month or so, guaranteed bonuses will be a thing of the past.’
Read more: http://www.dailymail.co.uk/news/worldnew...z0eVGYVoTl
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