AIG CEO says employees starting to return bonuses

UPDATED:

The embattled head of insurance giant American Insurance Group Inc. told a congressional panel Wednesday that he had asked employees to return some $165 million in bonuses but said he had concluded he had no legal option to cancel them altogether, even as the government was extending $170 billion in loans and other taxpayer aid to the company to keep it solvent.

AIG Chairman and Chief Executive Officer Edward M. Liddy told a House Financial Services subcommittee that there was justified popular outrage over the bonuses, but said he hands were tied and canceling the payouts could put the entire company at risk.

“The judgment was made we would lose all the progress we had made if we didn’t make these bonuses,” he said

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Mr. Liddy, who was drafted by regulators last fall to take over the company, conceded that “mistakes were made at AIG on a scale few could have ever imagined possible.” He said in prepared remarks that his new executive team “has to continue managing our business as a business — taking account of the cold realities of competition or customers, for revenues and for employees.”

“Because of this and because of certain legal obligations, AIG has recently made a set of compensation payments, some of which I find distasteful,” he said.

Mr. Liddy, a former head of Allstate Corp., faces a long day of angry questioning over the bonuses, many of which are going to executives in the London-based financial unit blamed for bringing the company to the brink of insolvency and sparking the massive federal rescue effort.

The AIG bonuses have also led to partisan sniping and questions about the Obama administration’s approach to the financial crisis. Rep. Tom Price, Georgia Republican, said he was disappointed Treasury Secretary Timothy F. Geithner had declined to testify at the hearing.

“Make no mistake, everyone is up in arms over the bonuses paid to AIG,” Mr. Price said at the opening of the hearing. “But the real outrage is that the taxpayer was put in this position in the first place.”

The populist anger over the AIG bonuses made for a popular attraction, with reporters, television cameras and curious onlookers thronging the hall outside the House hearing room.

Rep. Paul Kanjorski, the Pennsylvania Democrat who chaired the hearing. complained that Mr. Liddy had not kept lawmakers informed of the decision to make the bonus payments, and said the popular anger sparked by the bonuses could undermine support for future government aid to bolster the financial and credit markets.

Mr. Liddy said he had approved the bonuses in consultation with the Federal Reserve, and said not paying the bonuses could have left taxpayers with an even bigger tab if the company went under.

“I’m trying desperately to prevent an uncontrolled collapse of this business,” he said.

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