Tuesday, March 17, 2009

Geithner Vows to Recoup AIG Bonuses as Lawmakers Express Fury

March 18 (Bloomberg) -- Treasury Secretary Timothy Geithner told congressional leaders the U.S. will recoup executive bonuses paid by American International Group Inc. as outraged lawmakers raced to take back such payments from all companies getting federal bailouts.

Geithner, who has come under fire from Congress over the AIG payments, said in a letter to lawmakers last night the government will recover the money by requiring it be repaid from company operations and deducting the amount from the next $30 billion in aid being provided to the insurer. He also said the government will work to accelerate the “wind down” process of restructuring AIG.

The senior members of the Senate Finance Committee from both parties proposed taxes totaling 70 percent on bonuses at AIG and other companies getting federal money during the U.S. financial meltdown. House Speaker Nancy Pelosi directed committees there to draft several alternatives and said her chamber may consider a bill as early as this week. Other lawmakers introduced their own plans.

“Millions lost their jobs; it’s an outrage that the people who somewhat caused this problem are now paying themselves bonuses,” Senate Finance Chairman Max Baucus, a Montana Democrat, said yesterday in Washington. He and ranking Republican Chuck Grassley of Iowa also proposed limiting some forms of deferred compensation to $1 million at companies getting bailout funds.

New York-based AIG paid $165 million in executive bonuses after taking taxpayer-funded bailouts totaling $173 billion. AIG also budgeted $57 million in “retention” pay for employees who will be dismissed, according to a March 2 filing to the Securities and Exchange Commission.

Liddy Testimony

AIG Chief Executive Officer Edward Liddy testifies today before a subcommittee of the House Financial Services Committee. Panel Chairman Barney Frank said yesterday the government has a stronger legal case to reclaim the AIG bonuses now that the government owns a majority of the company.

“I think the time has to exercise our ownership rights,” Frank told reporters. “And then say, as owner, ‘No, I’m not paying you the bonus. You didn’t perform. You didn’t live up to this contract.’”

Geithner’s letter said Treasury lawyers determined that it would be “legally difficult” to prevent AIG from paying the bonuses because they were required by contracts.

Repayment Requirement

“We will impose on AIG a contractual commitment to pay the Treasury from the operations of the company the amount of retention rewards just paid,” Geithner wrote. “In addition, we will deduct from the $30 billion in assistance an amount equal to the amount of those payments.”

He also said criticism of Liddy is “unjustified” because the contracts were in place before he took over at the company last year.

The political heat generated by AIG bonuses indicates declining public and congressional support for shoring up beleaguered financial institutions with government funds, and may make it tougher for President Barack Obama’s administration to win approval for future bailouts.

Obama this week chastised the insurer for awarding the bonuses to staff of the derivatives unit blamed for the firm’s near collapse in September. New York Attorney General Andrew Cuomo said he’ll subpoena AIG for details on the payouts.

Answers Sought

Senate Banking Committee Chairman Chris Dodd of Connecticut said he wants the Federal Reserve, which is overseeing AIG’s bailout, to explain how it will resolve the situation.

“I would recommend they give back those bonuses,” Senate Majority Leader Harry Reid, a Nevada Democrat, said on the Senate floor. “We as a Congress are not defenseless.”

Pelosi said she directed the Financial Services, Judiciary and Ways and Means committees to draft legislation this week that would recoup misspent public funds from companies that received taxpayer assistance.

She said options include authorizing the U.S. attorney general to reclaim “prior and future excessive compensation” payments, barring retention bonuses at companies getting Treasury funds, and recouping the money through tax laws.

“Most appallingly, while millions of Americans struggle through this economy, those who have received the largest measure of taxpayer assistance from the Treasury Department have shown no restraint,” Pelosi said in a statement.

Taxes on Bonuses

The tax on bonuses proposed by Baucus and Grassley would apply to amounts over $50,000 paid starting Jan. 1, 2009, and to the full amount of any retention bonuses. The proposal would force AIG and other companies to pay overseas employees’ share of the excise tax.

Baucus said he believed the tax would succeed in recouping “most of the bonuses” paid by companies that get federal bailout funds.

House Ways and Means Committee Chairman Charles Rangel said he opposed using the tax code to take back the bonuses.

“It is tough, to me, to think of the tax code as a political weapon,” Rangel said in an interview. “I would hope and assume we have alternatives to the tax code” for taking back bonuses. He said he was working with other lawmakers to develop a “legislative response to this problem.”

Wyden, Snowe

Senators Ron Wyden, an Oregon Democrat, and Olympia Snowe, a Maine Republican, said in a statement the AIG bonuses might have been avoided if Congress had earlier adopted their amendment to force companies that use bailout funds to pay excessive bonuses to either return the money or pay a tax on it.

Also among lawmakers announcing proposals to recoup bonuses paid by AIG and other bailout recipients were Democratic Representatives Carolyn Maloney of New York Earl Blumenauer of Oregon.

Senator Charles Schumer, a New York Democrat, said in a speech on the Senate floor that he, Reid and other lawmakers sent a letter to AIG’s Liddy asking executives to return the bonuses to their “rightful owners.” He said if the money isn’t refunded, Congress will pass laws to “tax these bonuses at a very high rate.”

The disclosure on expenses for “employees expected to be terminated” may signal AIG is planning staff cuts after leaving employment unchanged last year, according to regulatory filings.

“As part of restructuring the company, we will ultimately eliminate jobs that are, at the moment, critical to maintaining ongoing operations and winding down certain businesses,” said Christina Pretto, an AIG spokeswoman.

For more news: http://www.bloomberg.com/apps/news?pid=20601087&sid=a_TbsRunotbQ&refer=home

No comments:

Post a Comment